In today’s challenging economic climate, many entrepreneurs and business owners find themselves grappling with a harsh reality: they simply can’t afford to pay their business overheads.
The rising costs of rent, utilities, salaries, and other essential expenses have placed an overwhelming burden on small and medium-sized enterprises, leaving them struggling to keep their doors open.
This dire predicament forces business owners to make difficult decisions, compromising their aspirations and the livelihoods of their employees.
It’s hardly surprising that some firms are finding it difficult to cover their overhead costs given the mounting financial strain on them from auto enrollment, rising business rates, and increases to the National Minimum Wage.
Monitoring your spending does aid in managing these expenses, but they can also consume a sizable percentage of your working capital each month. What expenses should you be paying attention to, and what can you do if you’re having trouble making ends meet?
What are business overheads?
Business overheads refer to the ongoing expenses that a company incurs to maintain its operations, regardless of its level of production or sales.
These expenses encompass a wide range of costs, including rent or mortgage payments for office or retail spaces, utilities such as electricity and water, insurance premiums, employee salaries and benefits, supplies and equipment, marketing and advertising expenditures, accounting and legal fees, and other general administrative costs.
Essentially, business overheads are the essential and fixed expenses that a company must cover to sustain its day-to-day activities and ensure the smooth functioning of its operations. Understanding and effectively managing these overhead costs is crucial for businesses to maintain profitability and financial stability.
What do you need to consider when you can’t pay your business overheads?
When you find yourself unable to pay your business overheads, it is essential to consider factors such as prioritising expenses, exploring cost-cutting measures, seeking financial assistance or alternative funding options, and evaluating the overall viability and sustainability of your business model.
Here are a few options:
Having trouble paying your bills when they become due is a clue that you may already be insolvent. Contact a licensed insolvency practitioner for advice and confirmation if you’re concerned about the company’s overall financial situation. You might need to suspend trading right away.
- Communication is key
Burying your head in the sand won’t help you in the long run, so if you’ve been avoiding calls from your creditors, now is the time to speak up and discuss making a payment under a loose arrangement.
- Professional advice
You can see a licenced insolvency practitioner at any point in the life of your firm; you don’t have to be bankrupt to do so. Professional assistance can convince your creditors that you are truly unable to pay them, which could lead to more successful talks.
When you can’t pay your business overheads
What to do if you can’t pay your business overheads:
- Reduce operational expenses
You can dramatically enhance business liquidity by cutting each expense by a tiny percentage by constantly assessing your business overheads and being aware of when you’re overpaying.
If your lease has a break clause or is up for renewal, you might be able to negotiate a lower monthly payment, renegotiate your advertising budget, or switch to paperless filing to cut your office supply and storage costs.
- Consider alternative funding
Alternative financing gives you extra working capital to cover your business expenses and can lay the groundwork for long-term growth, especially if you can also find cost-saving opportunities.
If you have a lot of clients with strong credit, invoice finance, a type of alternative funding based on the value of your sales ledger, can be a smart choice. Although there are other forms of invoice financing as well, invoice factoring includes giving the financier authority over your credit, which frees you up to increase sales or concentrate on other aspects of your organisation.
Asset-based financing could be used by businesses with high-value assets to increase their worth. You get a cash lump payment to pay off debt and breathing room to generally improve your circumstances with a sale and lease back agreement.
Other alternatives to traditional financing include merchant cash advances, which provide businesses money based on the amount of card purchases they make. Crowdfunding and peer-to-peer lending may also be appropriate for some enterprises.
- Formal insolvency procedures
You might be able to formally restructure your debt if you’ve declared bankruptcy and are unable to pay your business expenses. An Individual Voluntary Arrangement (IVA) if you’re a sole proprietor and a Company Voluntary Arrangement (CVA) if you’re a corporation are both binding legal processes that shield you from creditor legal action.
A licensed insolvency practitioner is chosen to present your creditors with a new payment arrangement. If your request is granted, you would pay a portion of the debt over a longer period of time at a rate you can afford given your current situation.
If there is no chance of rescue, another alternative is company administration, which can result in a number of various outcomes, such as the sale of the company, a CVA, or voluntary liquidation.
In conclusion, when businesses are unable to pay their overheads, it can be a daunting and overwhelming situation. However, there are strategies and options available to navigate through these challenges. By prioritising expenses, exploring cost-cutting measures, seeking professional advice, and considering alternative funding or government support programs, businesses can work towards resolving their financial difficulties and securing a sustainable future.
If you find yourself in a similar situation, take the first step today by reaching out for professional assistance. Complete our online enquiry form to connect with our team of experts who can provide personalized guidance and support tailored to your specific needs. Don’t let financial obstacles hinder your business’s potential; take action now to regain control and pave the way for success.
With over three decades of experience in the business and turnaround sector, Steve Jones is one of the founders of Business Insolvency Helpline. With specialist knowledge of Insolvency, Liquidations, Administration, Pre-packs, CVA, MVL, Restructuring Advice and Company investment.