Everyday issues that can lead to companies losing money

Ensuring a company’s cash flow is healthy and balanced is as important as it can be challenging. As it’s susceptible to issues that can crop up in the company’s day-to-day running, it’s essential that, as director, you know what to do if these issues lead to the company losing money and, in the worst case, threatening its existence. 

So, what everyday issues should directors watch out for to avoid their company losing money, and what can they do to prevent the company from experiencing further issues? 

Unexpected Outgoings. 

Business can be unpredictable. Rising costs from suppliers or one-off expenses (thefts, accidents, maintenance costs, etc.) can strain a company’s finances. Consequently, these issues can make it harder to cover other outgoings, especially if the company doesn’t have adequate reserve funds to account for these financial road bumps. 

Invoices not paid on time. 

By contrast, sometimes a business can find themselves stuck waiting for their clients or customers to pay invoices. Without reserve funds for such an emergency, companies can soon find themselves financially unstable if these invoices are relied upon to cover outgoing payments. Don’t feel like you can’t remind customers to repay what they owe you; your company’s creditors can do this to you if you don’t pay them on time. 

Seasonal changes. 

Some companies rely on increased sales during a particular season or holiday to make a profit. This can be because of a specialisation in trading holiday-related products or due to an increase in purchases around an event like Easter or Christmas. Those specialising in seasonal trade and operating exclusively during these short timeframes can find themselves under even greater pressure, and poor trade during a holiday season has caused even larger companies to close.  

High staff turnover. 

A high staff turnover can be more detrimental to a company’s prospects than directors might expect. 

Not employing the right candidate for the position can return to haunt directors and hiring managers if that employee resigns or has their contract terminated due to underperformance. Unless they have another prospective candidate, the company would have to restart the hiring process, adding further costs. 

From an employee’s perspective, seeing a company constantly hiring can give a negative impression, potentially implying a poor working culture or that staff aren’t being adequately reimbursed for their work. This negative reputation can leave the company unable to hire enough staff to cover their workload, creating further problems if the company falls behind or is unable to complete projects. 

Deeper-rooted financial problems 

Sometimes, an imbalanced cash flow or the inability to repay what’s owed, can indicate deeper-rooted issues within a company. This could be an unsustainable business model or expenses, or the loss of a substantial client. 

At worst, an imbalanced cash flow could be a sign of company insolvency. If this is the case, check whether your creditors have initiated legal action against the company, such as a Statutory Demand or County Court Judgment (CCJ). Even if you don’t find any of these, if your company’s liabilities outweigh its assets or if it’s struggling to repay its bills as they fall due, the company could be insolvent. 

Should this be the case, you should take decisive action as soon as possible for the best chance of achieving the desired outcome for the company. Leaving the issues to fester can worsen the situation and, potentially, more severe action from creditors. 

What to do 

What’s best for your company depends on its circumstances, and you should act quickly for a better chance of achieving your desired outcome. Speak to a licensed insolvency practitioner who can advise you of your options and which would be the best route forward. 

If you feel that the company has no future, or you want to put the company to bed, draw a line under its debts and walk away, you could close the company through a Creditors Voluntary Liquidation (CVL).  

Speak to a licensed insolvency practitioner to discuss a formal liquidation. They can explain how the process works and its associated costs

The process quickly removes creditor pressure, stopping all further legal action against the company while the insolvency practitioner deals with creditors. Entering liquidation voluntarily helps reduce wrongful or insolvent trading accusations, and offers you more control over entering the process than through compulsory liquidation. 

Depending on the volume of debt and who it’s owed to, it may be possible to put the company into a formal Company Voluntary Arrangement (CVA). These allow a company to repay an affordable portion of its debt in monthly instalments. Trading continues, with the brand maintained and creditor pressure paused. Once a CVA concludes, any remaining unsecured debt is written off. 

If more substantial work is required, Administration may provide the necessary breathing space. During this process, the insolvency practitioner investigates the company’s affairs and tries to plan a way to return the company to a profitable state. 

To summarise 

Everyday issues can lead to companies losing money. While these can seem inconsequential in the grand scheme of things, directors should ensure these financial drains don’t harm the company. Unexpected outgoings can leave the company shortchanged if they lack reserve funds, as can awaiting invoices from late-paying clients. Seasonal changes can impact trade and takings, and a high staff turnover can lead to additional expenditure. Sometimes, an imbalanced cash flow can indicate deeper-rooted problems, and these should be addressed before they grow into real issues for the company. 

If you suspect that your company might be dealing with one or more of these issues, take regulated advice from a licensed insolvency practitioner as soon as possible to avoid the situation worsening and threatening the company’s existence.

Brett Sartorial

Brett is a business journalist with a focus on corporate strategy and leadership. With over 15 years of experience covering the corporate world, Brett has a reputation for being a knowledgeable, analytical and insightful journalist. He has a deep understanding of the business strategies and leadership principles that drive the world's most successful companies, and is able to explain them in a clear and compelling way. Throughout his career, Brett has interviewed some of the most influential business leaders and has covered major business events such as the World Economic Forum and the Davos. He is also a regular contributor to leading business publications and has won several awards for his work.