This week Advantage Business Angels managing director Neil Mackay wallows in the recovery culture...
There has been plenty of talk about building a recovery culture in the UK, and trying to save companies rather then see them pulled apart by creditors.
I don't think I have ever met a business that has not been through a difficult patch, or short term cash flow problems. These are often caused by problems with their customers, finding a staff member is leaving or even some errors in accounts that were not spotted until they had grown to be a problem.
A business I worked with hit such a snag, and it was all hands to the pumps to try and keep the business going.
The big lesson is that early stage businesses need to communicate with suppliers and the bank at an early stage. Whatever the temptations don't leave it too long.
First of all the bank needs to know what is going on and what management are going to do about it. Confidence and trust are the magic words.
I worked in a bank for many years and we supported business in very, very deep trouble because we believed in the management.
Conversely we pulled the rug early on if we did not trust the directors.
Next come suppliers. Chasing money is a way of life for early stage businesses. If you have not worked in one you don't realise what a struggle it can be to have enough money in the bank to pay the wages.
It does not matter how much is in debtors, what promises have been made or how wonderful the company's prospects are; cash is king.
Don't make promises to pay that you cannot keep. It works once only for a short time and then you have lost trust. If you can't pay, say so and be open about when you expect things to improve. Don't give out post dated cheques - you'll never keep track of them and banks rarely check the dates.
Bounced cheques cost money and really hurt your credibility. I have to say that most companies are reasonable, knowing that they may well be in a similar position themselves one day.
I saw the announcement that the VAT and Inland Revenue are coming together and my reaction was - great stuff. But things are moving quickly.
I have just heard of a case where a company was behind on its VAT and PAYE/NHI payments. The director went to see the VAT office and was delighted to find that they were amenable to a deal on extend payments, but also told him that they would also negotiate on behalf of the Inland Revenue.
This is a major step forward, especially as the crown is no longer a preferred supplier.
Business Angel investors understand that short term cash flow problems are just that - short term, and that underneath there is often a very profitable business.
They are able to assess the position of the business and often will advance funds where other will not. Of course they will ask for a fair share of the equity in return for taking the risk.