throw good money

Don’t throw good money at bad debt

Authored by Phil Meekin

Phil Meekin

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Approximate read time: 3 minutes

Sometimes in business, you can be too close to the problem. It could be that your company may be carrying historical debt which threatens its future existence. Or you may be unsure about pumping more money into your existing business.

It’s vital that you don’t throw good money at bad debt

In a time where the traditional business model might no longer work with modern markets, creating and running a successful business is harder than ever. With a lot of businesses, there comes a crunch time and a decision has to be made, as to whether or not the business has a future. Nobody wants to close a business they have worked hard to make and sometimes it can be hard to separate yourself from the emotional ties you hold to your business.

throw good money


How to get yourself out of trouble

If you are a business owner, the effects of a recession can be keenly felt. Falling sales can impact on profits in many ways. Lower profits can quickly threaten even the survival of the business. It is easy to overlook very obvious solutions which could help the situation, for example:

  • Know how much you need to take to cover your overheads. In a very small business it may be easy to calculate the “break-even” position but with a larger operation, up-to-date management accounts are essential. If you wait until the year-end figures come back from your accountant you could have been loss-making for months before you take any action.
  • Look for ways to minimize costs without compromising the business. If sales have shrunk review labour costs; are you carrying surplus capacity in other areas?
  • Maximise your productivity – sometimes spending money on the best equipment can increase your business productivity
  • Increasing sales in a contracting market is difficult and sometimes your invoices don’t come in quickly enough – Invoice finance can be the perfect solution to aiding your cash flow, if late invoices are slowing you down.
  • If you have managed to cut back overheads consider low-cost marketing initiatives.
  • Review your systems to tighten up credit control and reduce wastage.

Accepting that things aren’t right

Sometimes small business owners can be too close to the problem. Accepting that a business is struggling, is not something every owner can do. However, the sooner the problems are faced, it’s easier to decipher if you are just trying to “throw good money at bad debt”. If you can see the business can succeed, but creditor pressure is holding you back, it may be time to look at payment plans. Options like a Creditors Voluntary Arrangement, can give you the option to pool all your creditors into one and then repay them over a set time.

In summary

Thankfully, there are rescue options out there to help businesses when they’re in need of financial aid. A good business with a solid model should be able to secure the right kind of finance package and trade its way out of trouble. For struggling business owners, they should try and remove the emotional ties and think if realistically, the business has a chance at survival.

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