Advice for sole traders in Scotland struggling with business cash flow problems
July 29, 2016
Being a sole trader can feel like a lonely existence, even when business is good. You make all the decisions yourself, and have to rely on your own judgement to make the business a success.
When cash flow becomes an issue and you can’t regain control, it can turn into a serious situation. Even if you’re making a profit, this lack of cash could potentially have devastating effects, putting you out of business very quickly.
So what can you do to prevent a decline into insolvency as a sole trader? Here are a few tips to help you get back on solid financial ground.
Know and understand your numbers
It’s crucial to recognise and understand the figures that make up your profit and loss account, and balance sheet. When you’re aware of what they mean in terms of everyday business, and how they interact with each other, you’ll be able to spot potential issues in advance.
How much does it really cost to sell your products or services, for example? Have you included all the specific costs of producing that item, or delivering that service? If you’ve been underestimating the cost-of-sales figure for a while, it could be the reason why cash flow has been an issue.
Additionally, it’s often the length of time taken to collect money in that causes a lack of available working capital. Your cash flow is compromised by regular late payers, even though you’ve delivered your obligations in the contract or arrangement.
Seek professional advice
Although an accountant might be the natural choice of advisor in the first instance, a licensed insolvency practitioner (IP) can offer a fresh perspective using their extensive knowledge and practical experience.
Insolvency practitioners offer valuable guidance at any stage, and can help before you begin to experience financial difficulties. They’ll make sure you understand all the available options, which might include sourcing additional finance during a market downturn for example, or selling one or two assets to boost your working capital.
Cash flow forecasts
Being able to anticipate the cash needs of your business over a period of months is not only very comforting, it’s crucial to staying afloat. It lets you get ahead of problems, highlighting the times when you might need to borrow money.
A cash flow forecast gives you greater control generally – you can arrange extra funding with your bank or other lenders in advance, feel confident that not only will regular liabilities be met, but that growth might also be achievable.
Formal insolvency procedures
Insolvency procedures are sometimes the only option, and can in fact turn a business around by offering the extra time needed to trade out of difficulty. As an example, the Debt Arrangement Scheme (DAS) involves paying your debts in full, but at an affordable rate. It freezes any interest and charges on the debt, and crucially, stops legal action by creditors.
The main point with the Debt Arrangement Scheme is that no debts are written off at the end of the period. As a sole trader you are personally liable for all the debts of your business, and again, a licensed insolvency practitioner would be able to examine your individual circumstances and advise on the most suitable option.
Dealing with long-term cash flow problems is de-motivating, and it can be easy to assume that the business will not recover. Rather than viewing potential insolvency as the end for your business, however, it could mark the beginning of a new stage if you establish effective systems and become more aware of why cash flow is a problem.
Scotland Debt Solutions can help you avoid personal insolvency brought about by self-employed debts. We will identify all the options, and offer guidance on the best way forward. Call one of the team for a same-day consultation free-of-charge.
If you’re worried that the council might take action against you for non-payment of council tax, entering into a Scottish trust deed can be a beneficial step. It stops legal action by all creditors included in the arrangement, and provides a ‘safe haven’ from which to regain control of your finances. As council tax arrears […]
A debt payment programme (DPP) remains on your credit file for six years, along with other default markers and court judgments that have been made against you. This can seriously affect your ability to borrow for this period of time, and longer. Even if you can secure borrowing, lenders are only likely to offer unfavourable […]
If you owe a debt of £5,000 or less, your creditor may send you a Simple Procedure Notice of Claim. This is a relatively new procedure that was brought in by the Scottish government and commenced on 28th November 2016 – their intention being to make it easier to resolve debt disputes. So if you’ve […]
A Bankruptcy Restriction Order may be made against you if it’s believed that you acted dishonestly, recklessly or unlawfully before you were made bankrupt, or during your bankruptcy. Your Trustee will inform the Accountant in Bankruptcy (AiB), and if their suspicions are upheld, a BRO of 2-15 years can be made depending on the seriousness […]
Debt payment programmes (DPPs) are an intrinsic part of the Debt Arrangement Scheme, which allows you to pay off unsecured debt at an affordable rate. If a debt payment programme is rejected by one or more creditors, the DAS Administrator can apply their discretion on whether to approve the plan, after using a test to […]
If you’re struggling to pay your unsecured debts, a debt payment programme could help you to regain control of the situation, and become financially stable again. Debt payment programmes are a fundamental part of the Debt Arrangement Scheme (DAS) in Scotland, and allow you to repay over a longer period of time. These programmes involve […]