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What are the best strategies to improve cash flow and reduce debt?

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If you are struggling with cash flow and debt, you might be worried about the risk of liquidation. Liquidation is the process of selling off your assets to pay off your creditors, and it can have serious consequences for your business and personal finances. However, there are some strategies that can help you improve your cash flow and reduce your debt, and avoid the worst-case scenario of liquidation. Here are some of them.

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Andrew Rumsey

Restructuring - Business Support & Recovery - Insolvency Advice - Liquidation - Voluntary arrangements. Need advice for…

1 Negotiate with creditors

One of the first steps you can take is to negotiate with your creditors and ask for more favorable terms, such as lower interest rates, longer repayment periods, or partial forgiveness. You can also try to consolidate your debts into one loan with a lower monthly payment. This can help you reduce the amount of interest you pay and free up some cash flow. However, be careful not to take on more debt than you can afford, and make sure you understand the terms and conditions of any agreement you sign.

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Andrew Rumsey

Restructuring - Business Support & Recovery - Insolvency Advice - Liquidation - Voluntary arrangements. Need advice for a company in financial distress? Call us for informed & supportive advice.
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Consolidating debts can be a great way to make payments more manageable, but it is likely to just be increasing the overall amount and timescale over which the debts need to be paid. So you may just be storing up future problems. It's also very important to consider whether a loan to your company requires a personal guarantee or other form of security from you personally. Unfortunately, I have spoken to far too many directors who took out company loans only to see it fail in the months thereafter. The result being the director is personally liable for the remaining loan balance. In short, seek professional advice beforehand and don't use a loan in isolation. Ensure the business can be viable/profitable too going forward.

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2 Cut costs and increase revenue

Another way to improve your cash flow and reduce your debt is to cut your expenses and increase your income. You can do this by reviewing your budget and identifying areas where you can save money, such as rent, utilities, supplies, or staff. You can also look for ways to boost your sales, such as offering discounts, expanding your market, or launching new products or services. However, be careful not to compromise the quality of your products or services, or alienate your loyal customers.

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3 Sell assets and inventory

If you have excess assets or inventory that you don't need or use, you can sell them and use the proceeds to pay off some of your debt. This can help you generate some cash flow and reduce your liabilities. However, be careful not to sell assets or inventory that are essential for your business operations, or that have a high potential value in the future. You should also consider the tax implications of selling your assets or inventory, and consult a professional if needed.

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4 Seek professional advice

Sometimes, the best strategy to improve your cash flow and reduce your debt is to seek professional advice from a qualified accountant, lawyer, or insolvency practitioner. They can help you assess your financial situation, explore your options, and advise you on the best course of action. They can also help you communicate with your creditors, negotiate settlements, or arrange formal insolvency procedures, such as administration, company voluntary arrangement, or liquidation. However, be careful to choose a reputable and experienced professional who can act in your best interest.

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5 Apply for government support

Depending on where you are located and what type of business you have, you might be eligible for some government support programs that can help you improve your cash flow and reduce your debt. These programs can include grants, loans, tax relief, wage subsidies, or other forms of assistance. You can check the official websites of your local or national government agencies to find out what programs are available and how to apply. However, be careful to comply with the eligibility criteria and reporting requirements of any program you join.

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6 Plan ahead and monitor your cash flow

Finally, one of the most important strategies to improve your cash flow and reduce your debt is to plan ahead and monitor your cash flow regularly. You can do this by creating a realistic cash flow forecast that projects your income and expenses for the next 12 months, and updating it as your situation changes. You can also use a cash flow statement that tracks your actual cash inflows and outflows for a given period, and compares them to your forecast. This can help you identify any gaps or problems in your cash flow, and take corrective actions before they become critical.

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Andrew Rumsey

Restructuring - Business Support & Recovery - Insolvency Advice - Liquidation - Voluntary arrangements. Need advice for a company in financial distress? Call us for informed & supportive advice.
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Strangely absent is to consider how you deal with your debtors, the money owed to you. Most companies request payment in 7-30 days. Although the reality is most debtor ledgers still show debtors that are 60, 90 or even 120 days old. So what to do: 1. Chase the debts - When we are struggling with cash-flow we sometimes get too focussed on chasing new work/clients and forget to recover the money we have already earned. Pick up the phone! 2. Incentivise your debtors - Can you offer a discount for early payment if cash-flow is your current biggest problem? 3. The Late Payment of Commercial Debts Act allows you to charge statutory interest on outstanding debts. Even if you don't charge it, it may focus the clients mind!

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7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

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What are the best strategies to improve cash flow and reduce debt?

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1 Negotiate with creditors

2 Cut costs and increase revenue

3 Sell assets and inventory

4 Seek professional advice

5 Apply for government support

6 Plan ahead and monitor your cash flow

7 Here’s what else to consider

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