Planning + Finance

How your Business Creditors help you save, turnaround, and grow your struggling professional client service consultancy, design, marcomm, PR, digital or creative agency business (checklist).

 Save Turnaround Grow Your Struggling Consultancy Practice Studio Agency Business Creditors

A twelve-part blog series outlining how to save, turnaround, and grow, your struggling or failing professional client service consultancy, architects practice, design studio, marketing communications (marcomms), PR, digital or creative agency business.

Click to listen to the audio or read the full transcript below and sign up for my Creative Core newsletter and I'll send you a quick-start business turnaround email course complete with 96 point action checklist and business turnaround strategies you can start using today.

Total Business Turnaround
Part 08 | Business Creditors

Your creditors, on the whole, are really the suppliers who have helped you grow your business. Without them, you would have nothing to make or sell. No product, no income—nothing. They helped you when you first got started and have been there for you throughout. Therefore, you should do everything you can to return the favour and ensure that they are well looked after and treated at all times with the respect and professionalism they deserve.

Business Continuity

You must maintain your integrity, honesty, openness, and you must recognise your obligations and make good on your debts wherever possible. In extreme circumstances, especially when the future of your business is in the balance, you should look at everyone associated with your business as suppliers and creditors, and for your business to survive; you have to look after them all. You can’t focus on one to the detriment to the other; otherwise your business will quickly start to fall apart.

Statutory Creditors

The main creditor you will have, and in the UK probably the main reason why you may have had to reach the decision to liquidate your company, is the government; especially if they are pressuring you to pay overdue monies owed for VAT and the Employee Tax. Because of the length of time that it takes for communication to pass down the ranks within government agencies, they can always come in and demand monies owed. However, once you have gone into liquidation or administration, it is the responsibility of the insolvency practitioner to handle any enquiries from the tax collectors.

You as Creditor

You will probably have to forgo any money you’ve invested in the form of personal loans or through credit cards. If you must get paid back, the best you will be able to do is to pay yourself only the absolute minimum to help ensure the continuity of the firm. You may receive a dividend from the insolvency practitioner, but that is dependent on the amount of funds you have invested as directors loans.

That dividend, however, will not be enough to pay the regular day-to-day bills of your credit cards and personal loans. Moreover, if you do receive anything, you won’t receive it for about 24 months, or until you’re new company has fully paid for the old business. You may have to consider personal debt management to make it through.

Problem Creditors

There are many creditors who will, more or less, work with you. There are others, unfortunately, who will more likely cause trouble. This will happen through unprofessional behaviour, rumours, and bad mouthing. The best way to deal with these issues, not to mention the creditors behind them, is to communicate as openly and fully as you can.

Responsibility and Understanding

It’s good practice to always keep the other person’s situation in mind and to be as understanding as you can. Remember that to a greater or lesser degree, everything that is happening to you and your business has an impact on everyone connected. You must remain professional and helpful. You are part of the reason you and the creditor are in this situation, but so is he.

Be as honest and helpful as you can, since by doing your best to resolve the situation, they will respect that once they’ve had a chance to vent and feel heard by you.

Repayment Schedules – Preferred Creditors 

You’re not meant to give any creditor preferential status, but there are business-critical suppliers and creditors that must be paid for you to continue working. Prioritise as best you can, but in the short-term you should only pay business-critical creditors and suppliers to ensure continuity and keep them on a realistic payment schedule so that your month-to-month cash flow and payments are kept to an absolute minimum. 

Repayment Schedules – Other Considerations

On the whole, it’s best to keep any agreement to repay ongoing business-critical suppliers on a gentlemen’s basis. In other words, try to leave it at a handshake.

Any commitment above that at this stage will simply put you under stress while you are trying to get the business going again.

As long as your intention is to make good the relationship, and you keep in regular and professional contact, then you’re doing your best and doing the right thing. So many others wouldn’t go this far and your creditors will, for the most part, respect this even if they are upset that they aren’t getting paid straight away.

Software Licenses and Copyright Issues

When it comes to software license agreements that are not carrying over, things can become very complex. Check the terms and conditions as you may have to re-buy certain items you thought you’d bought and had value in the purchase consideration for the old company.

Some software license agreements restrict the license transfer to restructured companies. Often, these companies will invoke their terms and conditions and insist that you purchase new licenses.

Photographers and other suppliers who hold the copyright of their work will keep a tight hold on the  copyright until they’ve been paid and that can lead to client issues. They may even contact your clients directly and demand payment, as they may ultimately be the end user of the copyrighted material. Deal with these suppliers in as timely a way as possible.

How Business Finance helps you save, turnaround, and grow your struggling professional client service consultancy, design, marcomm, PR, digital or creative agency business (checklist).

 Save Turnaround Grow Your Struggling Consultancy Practice Studio Agency Business Finance

A twelve-part blog series outlining how to save, turnaround, and grow, your struggling or failing professional client service consultancy, architects practice, design studio, marketing communications (marcomms), PR, digital or creative agency business.

Click to listen to the audio or read the full transcript below and sign up for my Creative Core newsletter and I'll send you a quick-start business turnaround email course complete with 96 point action checklist and business turnaround strategies you can start using today.

Total Business Turnaround
Part 05 | Business Finance

As a leader of your business, you need to be versed in at least the basics of finance, record keeping and basic reporting. It would help you if you went beyond these, but any practical financial knowledge will be useful. If you simply don’t have the time or the inclination to learn about finance, you’d better make sure you’ve got someone you trust who is qualified and understands finance to lead that aspect of your business.

However, you must not simply abdicate your authority. This is an opportunity for you to delegate authority and monitor performance. You need to stay on top this, whether you know anything about finance or not. 

Maintaining Cash Flow

We have already discussed how you can keep the cash flowing by billing promptly, avoiding over-trading, trimming your inventory and other other methods. Now we are going to go over a few other cash flow issues, like cross over, the dangers of the transition period, draw down availability, purchased debt and other issues you may need to deal with during your restructuring.

Issuing Invoices

Getting paid means sending out invoices, but what is the best way to go about it? It is more than just printing up a bill and popping it in the mail. You need to understand that invoicing is a multi-stage process, the importance of building relationships, money fears, sales financing and other issues.

Chasing Invoices

There are no hard and fast rules for chasing invoices, but once you’ve delivered your product or service to your client's satisfaction, it all comes down to ensuring the correct information is placed on the invoice, getting it into the hands of the right people and polite, efficient and consistent communication with the relevant people and departments until you either get paid or have to take legal action.

Credit Cards and Expenses

If you can’t show strong accounts and positive cash flow it’s unlikely that the business’s new bank will provide you with a simple debit card let alone a credit card of any form even with a low credit limit for at least 6 months. This is incredibly inconvenient especially when unexpected and minor expense items crop up during the transition when cash flow is at its most restricted.

You’re only options are to pay cash, write checks, have staff pay and reclaim on expenses, don’t pay, or use your own personal credit cards. Clearly not making the purchase is the preferred option, but some of these expenses will be legitimate operational expenses and can’t be avoided. You must be sure that you will be able to cover the expenses at the end of the month with salaries.

Dealing with Suppliers

Suppliers form a major part of your organisation. Without them, it’s highly unlikely that you would be able to deliver your products or services. In fact, without your suppliers you would have no business. It’s best to establish a deal mentality, one where you are dealing and negotiating to try and arrive at a win-win solution to both parties.

You need to work towards loyalty and it is important to be honest and return favours where and when you can. If your suppliers are no longer able to help you through difficult times, then you tried and must move on to find new suppliers. Business is business, but you must maintain integrity, honesty, openness, and make good on your debts with your suppliers if that’s how the relationship is ending.

Handling Creditors

The other side of the coin is your creditors. How you manage those you owe money to is every bit as important to the success of your business endeavours as how you manage those who owe money to you. Here are some suggestions:

  • Stop spending

  • Offer controlled repayment

  • Reserve account

  • You as creditor

Personal Guarantees

Throughout the early years of your business, when you getting it established, you will be required to sign personal guarantees to secure financing for your business in the form of loans, leases, purchases, and financing facilities. When going over your personal guarantees, you will have to consider a number of issue including bank overdrafts, business loans, defaults and late payments, sales financing and company purchase agreements.

Director Loans

Depending on your personal financial position, you may have funded your business with personal loans and credit cards and these may still be outstanding. This can cause considerable cash flow problems for you personally if your business is in trouble and going through a restructuring process. Make sure you stay on top of your credit reports and keep your cash flow positive.

How Business Planning helps you save, turnaround, and grow your struggling professional client service consultancy, design, marcomm, PR, digital or creative agency business (checklist).

 Save Turnaround Grow Your Struggling Consultancy Practice Studio Agency Business Planning

A twelve-part blog series outlining how to save, turnaround, and grow, your struggling or failing professional client service consultancy, architects practice, design studio, marketing communications (marcomms), PR, digital or creative agency business.

Click to listen to the audio or read the full transcript below and sign up for my Creative Core newsletter and I'll send you a quick-start business turnaround email course complete with 96 point action checklist and business turnaround strategies you can start using today.

Total Business Turnaround
Part 01 | Planning

Without planning, no business can succeed. You need to know where you are, where you want to be and how you plan to get there and that begins with your business plan. Of course, with today's economy and the immediate demands it places on you and your team, strategic planning may be the last thing on your mind. After all, it is hard to do the kind of big picture thinking it takes to work ‘on’ your business when you have to work ‘in’ it all the time. That, however, is precisely what you must do.

You can survive the turmoil by establishing and pursuing a goal worth achieving. This means examining your aspirations and expectations, your investment and how you plan to exit, the numbers you need to see to make it work, possible buyers and the value of your company, turnover, profit, and your business plan. All of these are important factors in determining winnable goals for you and your company. 

Aspirations and Expectations

You begin by examining what you want to achieve. Once you have determined that, look at your business and see what you can reasonably expect from it. Will your business, as it stands, fulfil your aspirations? Does it exceed them? Does it fall short? Remember: In all likelihood, you will, at best, only achieve to the level of your expectations. You can avoid this by examining and basing your plan upon an honest assessment of:

  • Your expectations – What your business realistically can do.

  • Your goals – What you really want to accomplish. 

  • Your education – The experience and skill your team and you bring to the problem.

  • Your focus – The way you use that knowledge and experience.

Your Investment and Your Exit

People change over time and so does the way they see things. You and your partners may have a very different perspective on your business today than you did at the start. Keep in mind that times of difficulty and upheaval create the perfect conditions for change. For you and your partners, this may mean a change in how invested in the business you wish to be or even how you plan to exit from it and under what conditions. 

The Freedom Calculator

For most people, economic freedom and freedom in general are almost one and the same. It is merely a matter of what you want to do with your money. The Freedom Calculator takes relevant data including your living expenses, dream realisation and re-investment figures and gives you a Capital Critical Mass that, at a reasonable 5% - 10% per annum managed investment return, will allow you to live the life of your dreams.

Target Buyers and Investors

If a listing on the alternative stock exchange is not practical, then you need to find investors or even buyers for your company, which might include your existing management team, if you wish to reach your Exit Point.

You need to identify the gaps between your services and those of your competition. 

Consider joint venture partnerships, finding suitors among your larger competitors and your clients, and modelling your business on their best practices to create a match.

Target Company Sale Value

While the sector your business is in, the current market conditions, and how strong a competitor you are all play a role in determining the value of your company, your business can realistically be valued as a multiple of profit or turnover, or a combination of both. Research into this area will help you solidify your aspirations and expectations and understand the key issues that potential investors consider. This will also help you tailor your business plan, investment presentation and negotiations to achieve the best possible outcome.

Target Turnover and Profit

Calculating your Target Turnover and Profit with data including target company value, an estimated industry earnings multiple, profit figures, target turnover and current turnover, provides an overall structure to the plan as well as a timescale. Any potential investor wants to know what return they may make for their investment over a given period of time and what the risks involved are. This also allows you to figure out the growth you will need to achieve over a fixed period of time in order to reach your Exit Point. 

Company Valuation Methods

You can use your projections with the Discounted Cash Flow Method to determine a reasonable, ballpark value of your company. Along with the Discounted Cash Flow Method you should consider your pre and post-money company value, investor equity, negotiation, incentives, areas of increasing value, goodwill, and multiples of earnings. All of these play a part and should be part of your calculations. Remember valuing your business is an art, not a science. However, it is better to be up to speed with the various methods so you are prepared to justify your own valuation of your company.

The Business Plan

When you are developing your business plan, you need to assess the roll you are to play in the business, how involved you will be and what you want to get out of it so you can concentrate your efforts right where they need to be. You must also take into account the functions of the business—the service it provides and the support it gives to you and the other owners—as well as the need for a healthy combination of inward and outward focus.

Finally, you need to be able to ensure consistent planning and follow-through in order to keep from making mistakes that sap time, energy and money from the growth of your business.