- Small businesses need access to reliable financing options in order to maintain their cash flow.
Did you know that 82% of business failures are due to cash flow problems? Companies need access to reliable financing to deal with it.
There are many reasons why a business may need financial assistance, from getting a company off the ground to expanding and everything in between. But if you’re struggling financially, it can be hard to know which route to take for the best. These are a few of the financing options available to your business if you’re facing difficulties.
Speak to your creditors
The first option available to any business is to open up the lines of communication with creditors and explain your situation to them. While an informal solution, it can be beneficial to discuss with them what you’re trying to do to resolve your issues. They may be able to offer advice or options to you that you hadn’t considered or realized were a possibility, such as spreading your debts out over a longer timeframe to make the payments more manageable. It may also mean that the businesses you’re dealing with will be less likely to take formal action if you’re keeping them in the loop.
Explore ways to raise funds
There are ways to raise funds to pay down debts and get your business to a healthier state, depending on the situation you’re in. You might be able to borrow from friends or family, for example, or liquidate assets to pay creditors something which often they’ll prefer over not being paid anything. Another option may be to look for a new cornerstone investor, though this will likely mean them having a large equity stake in your business. Similarly, peer-to-peer lending or equity crowdfunding can be an option.
Think about a CVA
If your business is spiralling out of control, a CVA may be a good option to consolidate your debts and restore your business. A CVA or Company Voluntary Arrangement is a legally binding contract between your business and your creditors which outlines how you’ll pay off their debt and the terms of that arrangement. Each party is legally obliged to abide by the terms of the contract and 75% of creditors must agree to these terms. It’s an option that can help an insolvent business from being forced into permanent closure and creditors know that they’ll have a better chance of getting their money back this way rather than if your company goes into liquidation.
Consider an MVL
A members voluntary liquidation or MVL is a positive process – it’s tax efficient, keeps costs low and it leaves no outstanding issues. If you have a cash-rich business and want to keep the tax bills low, an MVL could be a great option for you. The process of arranging an MVL closes the company completely and provides a more tax efficient and lucrative exit for the shareholders of the business as it unlocks the capital in the company. Understandably, shareholders are typically keen for distributions and company dissolution to take place quickly but working closely with a financial advisor and Insolvency Practitioner will help to speed up the process.
Choose a pre-packaged administration
Pre-packaged administration involves you seeking a buyer for the viable aspects of your business and assets, before an Insolvency Practitioner is appointed to facilitate the sale of the company. This is a quick and often cheaper solution for businesses who feel there are still viable components to the business. Of course, if the worst happens and you reach the stage of requiring administration, it’s essential that you make sure the financial decisions you make are professionally audited by an independent and fully qualified financial advisor.
Running a business is an expensive undertaking, and as you try to scale up and achieve different goals, there’s a chance that you could get out of your depth and find yourself in hot water. When you realise that you need financial assistance, it’s important not to put off seeking help as you could be allowing your business to get into an even more difficult situation that can be harder to get out of.
Depending on the extent of the issue or the stage at which your business is, you might be able to get out of financial difficulty quickly simply by borrowing money or you might need to speak with a financial advisor to understand your options, so your business remains legally compliant.