A realistic look at the moment cashflow juggling fails and what liquidation or personal bankruptcy may involve next (basically betting the family home on a hope of redemption)
Managing money can be difficult for Small and Medium Enterprises, especially when cash does not always cover expenses. Negative cashflow does not always cause immediate problems, but if it continues over time it can lead to serious financial pressure and debt.
Cashflow juggling happens when someone moves money around or delays payments to manage short-term financial pressure. This usually occurs when a person does not have enough cash available to pay all their bills when they are due. Even profitable businesses can suffer from negative cashflow.
Common examples of cashflow juggling include:
- Paying one bill late to pay another bill first
- Using a credit card to pay everyday expenses
- Borrowing money from family or friends
- Taking a new loan to repay an existing loan
- Using savings to cover regular expenses
At first, these strategies may help someone deal with a temporary financial problem. However, they often create larger debts or additional interest, which can make the situation worse over time. Further they may be making a very serious problem, an unprofitable business.
Improving cashflow usually involves a combination of actions:
- Stop the bleeding immediately
Pause or avoid:
- Taking new loans
- Using credit cards for everyday expenses
- Borrowing from payday lenders
- Paying one debt with another debt
Your goal now is stabilisation, not perfection.
- Get a clear picture of your money
Do a health check on your business. Write down everything to understand your income, essential expenses & non-essential expenses. This financial snapshot will either make you realise the problem is either spending leaks or debt repayments that exceed income.
The cashflow gap is the difference between your income and essential expenses. Your plan must remove the gap.
- Create and follow a budget
- Prioritise essential expenses (loans , utilities, essential goods, basis insurance and minimum debt repayments). Everything else is secondary.
- Cut cash leaks (subscriptions, entertainment and supplies)
- Manage and reduce debt (contact lenders and request – hardship arrangements, reduced payments, temporary pauses and interest freezes)
- Restructure your debt
Once spending is stabilised, address the debt structure.
Debt stacking (debt avalanche) whilst making minimum repayments on every debt you put any extra money towards the debt with the highest interest rate (reduced interest costs and faster long-term recovery). This method saves the most money because the highest-interest debt disappears first.
Debt snowball where you pay smallest debts first. Provide a psychological momentum.
- Align bills with your cash cycle
- Build a small emergency buffer (recommended saving between 3 to 6 months of essential expenses, if possible)
- Increase income where possible (overtime, side work, selling unused assets, negotiate a pay rise, renting out spare space)
- Track cashflow weekly
- Seek professional help if needed
Taking these steps early can prevent financial difficulties from becoming more serious putting underlying assets at risk, including the family home, and help individuals regain control of their finances.
If you have been juggling cashflow for some time and feel like you are under increasing pressure of further enforcement action by creditors, feel free to contact Alan Ma or Anthony Bagala, who are experienced trustees in bankruptcy, for free and confidential guidance.
DVT Mcleods is a business advisory firm specialising in business turnaround, corporate and personal insolvency, business valuations, and strategic business support.
Sometimes, the most important decision an individual makes is asking for advice before it’s too late.
