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Cash Flow Crisis

Whilst many headlines are focused on the uncertainty around Brexit, it will probably not have gone unnoticed that there have been some large businesses in the news recently, many of whom are struggling. Debenhams and Sir Philip Green’s Arcadia Group have both managed to agree restructuring plans, whilst British Steel faced insurmountable debts, which has forced its closure.

One of the key issues that businesses face is not being able to spot the warning signs early. This in itself is not necessarily a problem, but like any illness or injury, if left long enough, it can manifest into something much more serious, and harder to resolve.

So what type of things should you be looking out for if you are running your business? In short, anything which directly affects your cash at bank amount. Many businesses like to talk about profit, however the true indicator of success is cash availability – it doesn’t matter what profit you make if you cannot pay your bills on time!

The easiest one to spot is difficulties with paying your VAT or PAYE liabilities on time. When businesses are struggling for cash, the simplest thing to defer is tax payments. HM Revenue and Customs are benefiting from the real time information available to them, so they can promptly issue you with a reminder - which adds to the problem. If your business is one which deals with a large amount of cash, HMRC are also requesting security deposits if they feel that there is a risk of non-payment of taxes, which adds to the problems.

You might have issues trying to get your customers to pay you on time. Having a credit control function within a business ensures that you can collect the cash when it is due, therefore improving your cash flow.

Many businesses we come across reach for a quick fix to solve their cash flow problems. There are many lenders who will offer short term loans at higher interest rates, but if you feel that a lack of available cash is a constant concern for you and your business, it probably means that there is an underlying issue with your financial position that needs resolving. If this is the case, you should definitely consider seeking advice from a qualified and experienced professional as the earlier you identify the issue, the more options you will have to resolve it.

Article written by Heather Bamforth, Restructuring, Recovery and Insolvency Manager

For further help and advice please contact Heather Bamforth on 07900 263 235 or email her at heather.bamforth@armstrongwatson.co.uk

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