Firstly accept that you have a problem as denial will be of no help to yourself or those effected by the situation that the business downturn has created.
Three questions need to be answered:

• Where has all the money gone
• Why is the company in this position
• Can the shareholders put more money into the business.

Some of the reasons why small businesses get themselves into a difficult financial situation are as follows.

• Over Expansion. - The need to demonstrate growth may cause the business to grow too fast and exceed the availability of finance to fund this growth.
   
• Failure to adapt to a changing market.- Markets change all the time and you have to be continually aware of what is happening in your particular market.
   
• Adding new products that drag down the profitable ones.- Sometimes you think that by adding a new product or service this will create more profit for your business but in many instances all this does is drag funding away from your existing products or services and you end up in a situation where profit is not being created anywhere.
   
• Poor Capital Structure.- Debt levels are an important part of your business and too much debt will cause you problems with your cash flow so you need to get your debt down to a manageable level as soon as possible. Is your stock level too high based on your current sales, if so you need to get this down to where you can create extra cash to make those payments that are causing you problems.
   
• Failure to control controllable costs.- Has your business spent down the cash flow before it is flowing at a positive rate. It is very easy to spend money on things that you think you need for the business. Start to considers all expenditure very carefully and only purchase what is absolutely necessary and this is very important if you are having a cash flow problem.
   
• Failure to prepare for the volatility of uncontrollable costs- Examples of these particular costs are materials-energy-labour and insurance. We are all aware of the increase in the price of petrol but these other costs can also cause you problems with your cash flow.
   
• Poor internal controls and execution. Customer service is an important part of your business so are your sales being effected by the poor service provided by your employees. Are accounting controls in place so that you are collecting money owed to you on the due date and are you losing money through theft or fraud.
• Management. The last and probably the most important because with many small business the owner operator is the key person in the business. You are the person the lenders, suppliers, employees look to when they are assessing the business operation. It is important that they all have confidence in you and what you are planning to do.
   

What can be done to get the business back on track.

Firstly you need to find out all you can about your business and create a Business Recovery Plan so that everyone understands how you are going to solve the problem.

Accept that the business is in difficulty and you have to be honest with yourself and do not try and hide anything.

If you have employees you need to let them know what has happened.

Once you have completed your Recovery Plan contact all your suppliers and lenders and let them know what you are planning to do to pay them the money owed as this is essential because if you ignore them hoping they will go away, you will very quickly find yourself and the business in a very serious situation.
 

Do not make them any promises of payment unless you are confident that you can meet the payment date that you have made.
 

You will have find yourself in a situation of what I would call "fighting fires" and this usually means that you are spending your time going around in circles so a plan is essential so that you will solve your business problems in an orderly fashion.

Contact your accountant, and organize to have a meeting because what we have done here is to discuss your problem in a very general basis but an important part of you Recovery Plan will be your cash flow so it is essential that you seek professional advice.