Keeping your cash flow flowing

By Ian McCulloch, insolvency director, Begbies Traynor.

Cash flow is the lifeblood of any small business. Not only does positive cash flow allow you to pay your bills, employees and other financial obligations on time, it also enables your business to continue to grow and take on further work.

However, even for a profitable business, it is surprisingly easy to slip from a solvent to an insolvent position should there be poor cash flow management. So what should you do if your cash flow dries up? Your first task is to ascertain whether your company is solvent or insolvent.

If your company is solvent, you need to go back to basics and re-evaluate your finances. Perhaps take a closer look at your debtor book and consider altering your payment terms. You may also wish to consider obtaining specialist finance such as an asset-based loan or invoice factoring. Access to finance could help you navigate any shortfalls caused by unexpected bills or late payments from customers.

If your company is insolvent, however, you must stop trading immediately if there is a risk this will worsen the overall position. As a company director, you have an obligation to put the interests of your creditors first. Continuing to trade while knowingly insolvent could see you being held personally liable for the company’s debts, as well as facing disqualification from acting as a director in the future. If your company is insolvent, or is in danger of becoming so, you must seek professional advice as a matter of urgency. The earlier insolvency advice is sought, the more options will be open to you, increasing the likelihood of your business being able to continue trading going forward.