Cash Flow Crisis: 5 Essential Steps to Survive When Your Business Runs Out of Money

A real-world case study of how to navigate immediate cash flow problems and keep your business afloat when the money runs out

When Success Doesn't Equal Cash: A Real Business Crisis

Picture this: You're running a successful estate agency business with the largest pipeline of sold properties you've ever had, yet you're about to run out of cash. This isn't a hypothetical scenario - it's the reality many business owners face when external factors disrupt their cash flow patterns.

This exact situation recently unfolded for a property business owner who, despite nine years of successful trading, found themselves facing an unprecedented cash crisis. The culprit? A stamp duty change that forced transactions forward to March, creating an unexpected drought in April, May and June completions.

The irony was stark: "We're about to run out of cash, but we have the largest pipeline of sold properties by value that we've ever had. We've got this enormous constipated pipeline that is about to explode all over our profit & loss."

Why Even Profitable Businesses Face Cash Flow Crises

This situation highlights a crucial distinction that every finance manager and business owner must understand: profitability doesn't guarantee cash flow stability. You can have outstanding management accounts showing strong performance while simultaneously facing a cash crisis.

Several factors contributed to this particular crisis:

The business operated as a lifestyle company, with owners taking regular dividends rather than building cash reserves for business growth. When the pipeline dried up temporarily, there was no financial cushion to fall back on.

External market forces, like government policy changes, can create unpredictable timing issues that even the most proactive accountant couldn't have forecasted with complete accuracy.

In professional services and property businesses, you only get paid when transactions complete, regardless of how much work you've done or how strong your pipeline looks.

The 5-Step Emergency Cash Flow Action Plan

When you're facing an immediate cash crisis - not a problem in three to six weeks, but a situation where you can barely make one more payroll - here's the priority-ordered action plan that can save your business:

Step 1: Contact Your Best Customers for Early Payment

The fastest way to get cash into your business is through your existing customer relationships. This isn't about mass-emailing everyone with a sob story - it's about strategic, relationship-based conversations.

Identify customers with whom you have strong personal relationships. These are the people you can call and say, "I need a bit of a favour. If I give you a 5% discount, could you pay this invoice within 48 hours?"

This approach works because it's positioned as a win-win situation. The customer gets a discount, and you get immediate cash flow relief. Large corporations regularly use this strategy, offering early payment discounts as standard practice.

The key is maintaining the relationship while solving your immediate problem. Never frame it as a crisis - frame it as an opportunity for mutual benefit.

Step 2: Negotiate with Your Suppliers

Your suppliers are often more understanding than you might expect, especially in B2B relationships. Most cash flow problems stem from someone else in the supply chain not paying on time, so suppliers generally understand these situations.

Call your largest suppliers and explain the situation honestly but professionally: "We've had a bit of a hiccup with project timing, which means we're not getting cash in for another couple of weeks. Are you okay if we delay payment for a couple of weeks?"

From experience as a finance director in larger organisations, suppliers who receive honest communication about payment delays are typically accommodating. They prefer transparency over surprises and will often work with you to maintain the long-term relationship.

For smaller suppliers, you might be able to simply delay payment without immediate consequences, but for significant amounts, direct communication is always the better approach.

Step 3: Manage Direct Debits Strategically

Review all your direct debits and cancel or delay non-essential ones immediately. This doesn't mean cancelling your insurance or essential software subscriptions, but rather identifying payments that can be temporarily postponed.

Many companies allow you to change direct debit dates within their systems, pushing payments later in the month. If a direct debit bounces, most companies will simply retry in a few days, buying you additional time.

Focus on the payments that will make the biggest difference to your immediate cash position while maintaining essential services.

Step 4: Arrange Payment Plans with HMRC

This might surprise you, but HMRC is often very accommodating when it comes to payment arrangements. The crucial point is communication - you must tell them you're not going to pay on time.

For VAT payments up to £50,000, you can apply online for a "time to pay" arrangement and often receive instant approval. For larger amounts or other taxes, you can contact them directly.

The key benefits of proactive communication with HMRC include:

• You'll only pay interest rather than penalties

• You avoid accumulating fines that compound over time

• You can often arrange payment plans extending up to 12 months or longer

• You prevent your accountant from receiving constant letters and charging you for processing them

Remember to cancel any direct debits to HMRC before the payment date and ensure you have an agreed arrangement in place.

Step 5: Explore Funding Options

When you can't accelerate customer payments enough to bridge the gap, you need to look at funding solutions. The approach here depends on whether you can see a clear path out of the crisis.

If you have a strong pipeline and confidence in future cash flow, director's loans or business loans make sense. However, if you can't see a clear recovery path, avoid putting personal money at risk.

Consider these funding options in order of preference:

Director's Loans: If you have personal funds available and confidence in recovery, this is often the quickest solution. These can be repaid tax-free and you can even charge your business interest.

Business Credit Cards: These can provide immediate access to funds and, with platforms like Aprio, allow you to pay suppliers who don't normally accept cards.

Asset Finance: If your business owns equipment, vehicles, or other assets, you can often secure funding against these quickly. Even second-hand assets can be used as security.

Invoice Finance: While more expensive, this can provide immediate cash against your outstanding invoices.

The Importance of Proper Financial Planning

This crisis situation underscores why working with a qualified finance professional is essential for sustainable business growth. While most accounting practices excel at year-end accounts and tax returns, strategic cash flow management requires specialised expertise.

A proactive accountant with experience in management accounts and financial planning can help you:

• Implement robust cash flow forecasting systems

• Establish appropriate cash reserves for your business model

• Create early warning systems for potential cash flow problems

• Develop contingency plans before crises occur

  
  

Key Takeaways for Business Owners

Cash Flow Beats Profit: Your profit & loss statement might look healthy, but without proper cash flow management, even profitable businesses can face crisis situations.

Relationships Matter: The businesses that survive cash flow crises are those with strong relationships with customers and suppliers. Invest in these relationships before you need them.

Communication is Key: Whether with customers, suppliers, or HMRC, honest communication about payment timing issues is usually met with understanding and cooperation.

Plan for the Unexpected: External factors beyond your control can disrupt even the most stable businesses. Having contingency plans and cash reserves is crucial for long-term business growth.

Get Professional Help: Working with a finance manager or specialized accountant who understands cash flow management can prevent these crises from occurring in the first place.

Moving Forward: Building Cash Flow Resilience

Once you've navigated the immediate crisis, focus on building systems that prevent future cash flow problems. This includes implementing proper bookkeeping procedures, regular management accounts reviews, and working with professionals who can help you understand the real drivers of your business performance.

Remember, cash flow crises are often temporary problems that can be solved with the right approach and professional guidance. The key is acting quickly, communicating honestly, and maintaining focus on the long-term health of your business.

The business owner in our case study felt significantly better after working through these options, realising they had multiple viable solutions available. With proper planning and the right professional support, you can build a business that's resilient to these inevitable bumps in the road.

Facing cash flow challenges in your business? Our team of specialist finance professionals can help you implement robust cash flow management systems and develop contingency plans tailored to your specific industry and business model.