I need serious help getting a business out of a financial hole.

Hi guys, sorry i am a regular poster but signed up with an alias for this. I hope you don't mind.

I need serious help with the business and i don't know what to do.
I run a small services type business with a few employees and from the outside we are very successful and even well known.
We seem to be doing everything right, we are charging high (finally), we have a waiting list of clients and they are happy when they leave. But its just not working. I cant seem to get us out of a hole to become steady.
We are surviving hand to mouth every month, praying cheques come in in time for wages. Clients are great and paying on time but one bad month will finish us. On top of that we are starting to get behind on our revenue payments. For a long time i put it down to starting a new business but its way past that now and still going on. We just had our 3 best months ever with big name clients paying well. I am now putting it down to me being a bad manager but cant see a way around it. Any ideas we do have i find impossible to find time to do because i am working so hard to bring the next cheque in which continues the circle.
Because we fought it out so long alone mine and the businesses credit rating are shot so any type of loan is out of the question. I don't want to take on more debt anyway.
Sorry the post is a bit rambling but help!

We can all from time to time find it difficult with when running our own business but it sounds like you are experiencing continious difficulties.

I'm not sure of your industry, which might help but understandable if you don't want to declare it. It might help to have an indication.

There are different types of management and cost cutting methods, results can vary depending on the individual but I might suggest the first thing you try to do is micro management, basically analysing everything your business does, like every single expense, is it necessary or can it be reduced.

Perhaps if you can tell a little more specific then some good advice can be offered.

Is it possible for you to get someone else to chase the cheques so you can concentrate on getting more business. You're obviously good at making money/good at this business. That's a great plus and well done on this. It's not easy to run a business. Maybe you're trying to do everything and you need to delegate. Also are you charging enough, have you actually analysed that what you take in is more than what you pay out. Like the previous poster said maybe you need to do some cost cutting. Another suggestion would be for you to maybe hire someone who's an expert at analysing business to take a look to see where you are going wrong. As a short term solution as you have seem to have cash flow problems is there anything you can sell to release some cash an expensive car/property/savings. Are you sure you can't go to your bank and renegotiate, maybe you're paying over the odds for an overdraft etc. You need to look at everything to see where it's going wrong. As you've not said what kind of business it's very hard to give advice. From a personal point of view, is there someone you could talk to, (spouse/sibling/parent) help you to see that it's possibly not as bad as you think, someone who supports you. It's very hard to do things on one's own.

Yeah - cashflow sounds like the problem. Perhaps invoice discounting might be an option while you try to find a more permanent cashflow solution?

On the other hand maybe the problem is not just cashflow and perhaps the business may not actually be viable in its current form in spite of the positives?

You certainly need to get on top of the Revenue payments. Of all your creditors letting this slip is a recipe for disaster.

How about some mentoring? I know that some of the County Enterprise Boards provide this and I know of one instance where the recipient found this to be invaluable, though it would depend on the mentor. Failing this, you could pay for a business mentor to spend some time with you to help you to work on your business rather than in your business.

Maybe you are too close to the coalface to be able to analyse the problem? You say you are "working so hard to bring the next cheque in". Maybe this is stopping you form being able to step back and look at the overall picture. Do you have a friend/colleague that you can trust to confide in and run an eye over how the operation is going? At the very least, confiding in a good friend or family memeber will relieve the stress you're obviously under!

Another thing, you say you're living hand to mouth. How much would it take to relieve the cashflow problems? One month's income? Two months? Or more? You need to ask yourself this question. It's a thin line between being in the red or in the black, but there can be a huge positive impact across all fronts, not all economical, when you get to the right side of that watershed.

You have fought hard to get to where you are. Don't give up easily. Talk to a third party, either professionally or on a personal basis. A problem shared is a problem halved!

This might be a silly suggestion for your particular industry but if you are spending most of your time chasing the next paycheque maybe increase your prices by 10%, you might loose 10% of your customers but for the same overall income and less customers to chase up, you gain more time to devote to building the business.

Good luck.

Have you got a good accountant (experienced in service industries), either inside the business or on contract to you? Their advice would be invaluable in pointing you in the right direction. When I was in the IT consulting business, the rule of thumb was that income would go on;

- one-third to salaries of staff
- one-third to overheads
- one-third to profit

How would your business measure up against this?

What kind of payment schedule do you operate? Could you get away with (for new contracts) billing say 25% of the cost on commencement of the assignment? This would give you a significant boost to cash flow, hopefully without impacting your competitive position.

From my own days in a service industry, there were two key factors;

- Utilisation rate, i.e. the ratio of time spent on chargeable client business vs non-chargeable time (training, development, sales, Google/Askaboutmoney etc). We used to aim for rates between 65% and 80%, depending on the role.

- Job profitability - unless you have the luxury of being able to charge clients by the hour, you are billing clients based on quotations or estimates. It is critical to see how accurate these estimates are, as even experienced professionals are often over-optimistic

Do you have systems in place to allow you to monitor these performance indicators? I understand that some of the accounting packages like Sage have add-ons for service industries, that would calculate these figures based on staff timesheets.

with a waiting list you do not seem to have capacity to deal with demand?
It is hard to advise not knowing exact sector but to me the problem is the waiting list.
Work on efficiency and maybe increasing capacity at bottleneck (where is bottleneck?).
My worry using line queueing theory that if potential customers are waiting in line that some may drop off. As always the best way of reducing costs/overhead is to increase production which makes staff etc more efficient. Would you consider incentivising staff to increase efficiency as the increased production is highly profitable as assume fixed costs already paid for and your only additional overhead on these monies would be variable cost and staff bonus?

Unreg. You appear to have disappeared. Cashflow appears to be the problem, which comes with a business that is undercapitailsed. As you take on more work, the problem gets worse, although if you stopped, examine your figures, I would say that there is a healthy profit when all analysed.

Go to your Bank and request an overdraft. This is the purpose of Banks. To assist with lending money to credible business. Or failing all and you have had enough, flog the business, but frankly don't give up. Get the Revenue up to date, take a weekend off with your partner, chill out and go for it.

What you are going through is what nearly all successful businesses went through starting off.

Thank you all very much for your replies guys. You have given me a lot to think about and some great suggestions on how to figure out what is going wrong. I really appreciate it.
The business type would be IT consulting and development. I will let you know how i get on.

Unreg - if that's your line of business and you appear to be good at it, it may be time to have a reorganisation both internally and externally and increase your chargeable rates.

It's hard to comment without knowing more details...are you paying yourselves a fortune for example?

If you have a waiting list and cannot increase capacity then you should increase your prices.

From the sound of things you seem to have an excellent ability to sell your service / business and operate the day to day work tasks involved, however, the following advice comes from a man who has learned the hard way, please pay attention and you may save your business.

1. Tomorrow morning arrange for a complete audit of your accounts.

2. Sit down with auditor and formulate a survival plan based on results of audit.

3. Take complete charge of your accounting functions and only sign cheques yourself.Prepare monthly management accounts, cashflow projections(learn how to do this, get good accounting software, and use it. Delegate all other day to day functions to your employees, promote someone to take over from you on the day to day stuff.

4. Sort out Revenue first, talk to them, do a deal, they do this all the time. The secret here is to catch it in time and contact them as soon as possible.

5. In Ireland business relationships are on a more personal basis than in other countries, talk to your creditors about your account and work with them to sort out a payment plan.

6. If you have a brother or another member of your family working with you in the company, contact the auditor now, dont wait until morning.

I was once in your shoes buddy and ran a very sucessfull biz also but had no business coach and trusted family too much.



I hope you listen and all goes well for you in the future

Cheers !

A lot of the replies are assuming that cashflow alone is the problem here.

Are you sure it is not more fundamental than that.

Do you know if the company is making a profit ?
Or is it a case that the company is making a profit but cashflow is a problem ?

The solution to your problem will vary depending on the answer to the above.

henry said:

A lot of the replies are assuming that cashflow alone is the problem here.

Are you sure it is not more fundamental than that.

Do you know if the company is making a profit ?
Or is it a case that the company is making a profit but cashflow is a problem ?

The solution to your problem will vary depending on the answer to the above.

Click to expand...

Yeah - I did suggest that the problem might be more fundamental earlier:

ClubMan said:

Yeah - cashflow sounds like the problem. Perhaps invoice discounting might be an option while you try to find a more permanent cashflow solution?

On the other hand maybe the problem is not just cashflow and perhaps the business may not actually be viable in its current form in spite of the positives?

Click to expand...