What do people do if your business has not generated enough for the month?

Discussion in 'Cashflow forum' started by majordan, Sep 27, 2018.

Thread Status:
Not open for further replies.
  1. majordan

    majordan UKBF Newcomer Free Member

    8 0
    Maybe you’ve not done so well one month, or maybe customers haven’t paid yet.

    So I’m curious what people would usually do.

    I’ve been running my business for 2 years, I’ve got a few staff I always pay first, and suppliers, and tax, then I’m always last. A few times I’ve not had enough for my minimum living wage, I’ve had to use personal savings to pay the bills. I’d like to avoid it this time or maybe there’s not enough savings.

    What would most business owners do, is there a better way than others?

    I assume options would be:
    Business overdraft
    Business loan
    Personal overdraft
    Personal loan
    Credit card
    Don’t pay suppliers or staff
    Use tax savings if any (business loan to self)
    Invoice factoring


    Any others? What’s the best?

    Thanks
     
    Posted: Sep 27, 2018 By: majordan Member since: Jan 22, 2015
    #1
  2. CriticalThinker

    CriticalThinker UKBF Regular Full Member - Verified Business

    126 27
    The first thing to consider are those options that do not have a financial cost attached. Typically businesses will negotiate extended payment terms with their suppliers and make a concerted effort to chase outstanding customer debt (could you offer an early payment discount to incentive customers to pay quicker?). Using a credit card (and paying it off in full each month) will enable you to utilise the interest free period and not pay interest on the card and there are always family and friends who could provide short term investment as well.

    Depending on the cash cycle of your business and time taken to receive debt then invoice discounting or factoring (there is a distinctive difference!) is an option but this will have a financial cost for the advanced funds and the advanced rate will be dependent on your circumstances however you will get a % of the debt not the full debt advanced. Bank overdrafts are also potentially beneficial but will carry a charge.

    Finally if all else fails then you can look at funding such as loans but I am always extremely cautious about businesses taking out funding to fund the day to day running of the business as this typically means the business has underlying issues and cannot afford to support itself and generating further debt just leads to even greater problems further down the line.
     
    Posted: Sep 27, 2018 By: CriticalThinker Member since: Jul 2, 2018
    #2
  3. Mr D

    Mr D UKBF Legend Free Member

    17,629 2,005
    Get more business.
    And I have a go at the lazy git in the mirror for not doing more to get more business in. I know he won't report me to anyone for the language used on him.

    Times I've not been able to be paid I simply don't get paid. Bills for the business come first. If meals end up being skipped a few times its not the end of the world.
     
    Posted: Sep 27, 2018 By: Mr D Member since: Feb 12, 2017
    #3
  4. Ian J

    Ian J Factoring Specialist Full Member - Verified Business

    5,436 1,584
    Offering an early payment discount does have a financial cost attached to it.

    If the OP is considering factoring then I would agree that applying a bit of credit control first is a good idea as that comes with no additional cost
     
    Posted: Sep 28, 2018 By: Ian J Member since: Nov 6, 2004
    #4
  5. MBE2017

    MBE2017 UKBF Ace Free Member

    1,111 300
    Not paying staff on time should be removed from the list all together, the only time that would ever happen in my business is if I went bust, and they would still get paid once I had sold personal assets. The damage done to staff morale makes such an option untenable IMO.

    When I used to work for anyone in my youth I had a golden rule, no pay and I left on the spot, after taking goods to the value of my lost wages. I still recommend this action to youngsters today.

    Mr D post above covers everything else.
     
    Posted: Sep 28, 2018 By: MBE2017 Member since: Feb 16, 2017
    #5
  6. Newchodge

    Newchodge UKBF Big Shot Free Member

    12,825 3,348
    That is the absolute worst and will eventually lead to the end of your company. You will lose your staff = would you be employed by someone who deosn't pay you. You will lose your supplier accounts - would you continue to supply someone for nothing.
     
    Posted: Sep 28, 2018 By: Newchodge Member since: Nov 8, 2012
    #6
  7. cjd

    cjd UKBF Legend Full Member - Verified Business

    15,451 3,074
    If you're not making enough profit to pay your running costs you don't have a viable business and going into debt can only make things worse. Unless, that is, you're a start-up just building the business.

    You need to look at what's going on in your business that makes it difficult to meet payroll because without understanding that, you can't build a successful business.
     
    Posted: Sep 28, 2018 By: cjd Member since: Nov 23, 2005
    #7
  8. majordan

    majordan UKBF Newcomer Free Member

    8 0
    Thanks for the replies. To make it clear, the business makes profit its just invoices are owed to us, so until they are paid, I dont get paid, so I'm asking about what other people do in this situation. Maybe whatever the majority do would be a good option :)

    I am going to apply for an overdraft, its 5.9% at HSBC I think that may be the easiest. Never had a business overdraft in 13 years.

    Thanks
     
    Posted: Sep 29, 2018 By: majordan Member since: Jan 22, 2015
    #8
  9. majordan

    majordan UKBF Newcomer Free Member

    8 0
    Thanks for the replies. To make it clear, the business makes profit its just invoices are owed to us, so until they are paid, I dont get paid, so I'm asking about what other people do in this situation. Maybe whatever the majority do would be a good option :)

    And about "Get more business" oh wow never thought of that. I'll just go get some off my business tree :). Not as easy as that. When you have a week or two left of the month and realise you wont have enough if large outstanding invoices are not paid we cant just turn a money tap on and get money in elsewhere. It takes time for us to tender and win jobs and then get paid. Can be weeks or months before anyone agrees to proceed to commission us. Its not about business anyway, we have a lot on and I have to employ another person soon to help, its just some customers dont see the importance of paying it to us before the end of the month for salaries.

    I might apply for an overdraft, its 5.9% at HSBC although its £4 a day also so could be costly if I have it for a while. Will have to compare it to a personal overdraft.

    Thanks
     
    Last edited: Sep 29, 2018
    Posted: Sep 29, 2018 By: majordan Member since: Jan 22, 2015
    #9
  10. atmosbob

    atmosbob UKBF Ace Free Member

    3,914 881
    Overdraft rates are negotiable. Shop around. Whatever you do don't get persuaded into a loan instead.

    The other thing to do is tighten your belt. Stop spending money. Its the cheapest form of finance there is. Don't be tempted to spend again until you have a healthy bank balance.
     
    Posted: Sep 29, 2018 By: atmosbob Member since: Oct 26, 2009
    #10
  11. Mr D

    Mr D UKBF Legend Free Member

    17,629 2,005
    Yes you didn't mention the timescale to get more business for your particular business type.
    Been there and done that, 3 months to a couple of years to get contracts done and money start coming in. The company I was with started redundancy proceedings for all staff twice in a year due to cashflow issue.
    Much easier when its 90 seconds to apply a sale to a bunch of products and see results within hours. Which is of course the other end of the business spectrum for generating new business speedily. :)

    I would question if your business is viable overall if it has problems paying bills due to problems getting paid on time. Cashflow issues can be looked at, simplest changes can sometimes work. Sometimes professional help can make a difference.

    You can't mess with employee salaries and if you pay your bills late you are knocking on the same effect onto those you owe money to.
    What happens if one of your customers goes under? Insurance pay out or will you be in even worse straits than you can be now?
     
    Posted: Sep 29, 2018 By: Mr D Member since: Feb 12, 2017
    #11
  12. MBE2017

    MBE2017 UKBF Ace Free Member

    1,111 300
    OP you need to start chasing outstanding monies owed as hard as you do for new business, a part of business I personally hate, I spend normally the last week and a half of each month on the phone to clients to get outstanding payments.

    I never get them all, but it definitely helps cash flow a lot.
     
    Posted: Sep 29, 2018 By: MBE2017 Member since: Feb 16, 2017
    #12
  13. tony84

    tony84 UKBF Big Shot Free Member

    5,609 1,001
    Am I the only one thinking taking on debt to ensure you earn a wage is mental? All you are doing is paying your wages from a loan. You may as well just put your savings in to the business account and pay yourself back, if nothing else it is more tax efficient I would imagine.

    Personally, I pay myself a wage and let the rest go in to the business account. We have 3-4 quiet months from November-Feb where we probably do not cover our costs, but then the other 8 months more than covers that period. In the good months I pay myself a wage less than I am earning. In the poor months I pay myself more than I am earning but the money is there to do that.

    If you are constantly being paid late, then that would still work itself out woudl it not? So the first say 6 months would be quiet but then then work you did 6 months ago starts to get paid. The following months work would get paid the following month and so on? If you are consistently not earning enough to pay yourself a wage, to me that means your expenditure is too high for the income.
     
    Posted: Sep 29, 2018 By: tony84 Member since: Apr 14, 2008
    #13
  14. BenTargett

    BenTargett UKBF Newcomer Free Member

    21 7
    I recently read somewhere (Think it was Rich Dad, Poor Dad) that you should pay yourself first, staff second, suppliers third and the government last.

    The reasoning being that your suppliers and the govt will be on your case to get paid and it gives you a little more motivation to resolve the cash flow issues; you are less likely to chase yourself with the same vigour.
     
    Posted: Sep 30, 2018 By: BenTargett Member since: Jul 11, 2014
    #14
  15. Mr D

    Mr D UKBF Legend Free Member

    17,629 2,005
    Yes that sounds like Rich Dad Poor Dad.

    Or to put it another way:
    Budget luxuries first. (Lazarus Long, 1912 - ?)
     
    Posted: Sep 30, 2018 By: Mr D Member since: Feb 12, 2017
    #15
  16. Newchodge

    Newchodge UKBF Big Shot Free Member

    12,825 3,348
    And if all your employees, quite properly, give you the finger and sabotage your business as they walk out the door?
     
    Posted: Sep 30, 2018 By: Newchodge Member since: Nov 8, 2012
    #16
  17. Mr D

    Mr D UKBF Legend Free Member

    17,629 2,005

    Missing the point.

    No one is suggesting not paying staff. Reread his post again. Including the reasoning.
     
    Posted: Sep 30, 2018 By: Mr D Member since: Feb 12, 2017
    #17
  18. billybob99

    billybob99 UKBF Regular Free Member

    1,278 311
    Half the stuff by Rich Dad Poor Dad is just a load of BS anyway, aside from that, most would say pay your employees first, without them there is no business.
     
    Posted: Oct 1, 2018 By: billybob99 Member since: Apr 23, 2013
    #18
  19. Mark T Jones

    Mark T Jones UKBF Big Shot Full Member

    3,718 1,158
    Before you consider any for if debt you need to take a good look at your business model and ensure that it is fundamentally viable.

    Whilst cash flow is critical it is also often used as a mask to cover a business that simply doesn’t work

    Next step is to evaluate every stage of your credit control process - starting at a point before you actually offer credit

    If you are sure that the only problem is cash flow, then some form of factoring agreement might well be the answer.
     
    Posted: Oct 1, 2018 By: Mark T Jones Member since: Nov 4, 2015
    #19
  20. Chris Ashdown

    Chris Ashdown UKBF Legend Free Member

    10,856 2,203
    A bank loan is just hiding the problem of not managing the problem

    You are not a bank so in many cases don't need to lend out money or services but use pro-forma invoices for every sale you can. for some that must be sold on credit you need to sharpen up and chase the overdue money or stop supplying them

    Many companies these days give staff debit cards to buy many things with and if they don't at least the top management will have them, so press them to make payment that way on a pro forma invoice

    It's easy to think that if you are tough they will go elsewhere but in my experience they seldom do. they like the service, they like the price and the buyer is seldom the person holding back the money but the accounts department making life easy,

    If you must give Credit, don't ring up your buyer for the money but ring up the accounts department and chase them every day explaining your terms
     
    Posted: Oct 1, 2018 By: Chris Ashdown Member since: Dec 7, 2003
    #20
Thread Status:
Not open for further replies.