Most limited companies will experience cash flow problems from time to time. The occasional missed invoice or one-off investment can put a temporary dip in revenue. When this happens, a common solution directors turn to is to put personal money into the company in order to balance the books. Is this a good idea? In this blog post, we’ll be assessing the risks.
Why Put Personal Money into a Limited Company?
The main reason why managing directors put personal money into a business is because the company is going through short-term cash flow problems. Most limited companies will experience this at some point. It’s not the end of the world. However, when you’re led to putting personal money into your business, it’s important to assess why you’re having to do this. Is it really just short-term cash flow problems? Or do these problems point toward underlying financial issues?
So, Is It a Good Idea?
For short-term cash flow problems—yes. If it’s merely a matter of covering a one-off payment, the risk to your company is relatively low. The real problem arises when directors have to repeatedly put personal sums of money into their company. This is a clear sign of deeper structural issues which need to be addressed as soon as possible. Recurring financial losses indicate that the prospect of insolvency is on the horizon.
If you’re concerned that insolvency might be on the cards, there are a few ways you can go about finding out for sure. Pay attention to the bank’s response to you requesting loans. Are the interest rates sky-high? If so, this could confirm the bank’s lack of faith in the future of your business, which means you really shouldn’t be pouring your own money into it.
Conclusion
You should put personal money into a limited company if you’re experiencing short-term cash flow problems. This is a safe, quick solution to a temporary lack of money. However, if you suspect these cash flow problems are indicative of underlying issues which could place your business at risk, speak to an insolvency specialist.
Silver Insolvency Solutions
The early signs of insolvency must be tackled quickly if your business is to stand a chance of survival. Whether you’re concerned with cash flow or facing the prospect of bankruptcy, a free limited consultation with Silver Insolvency Solutions could be of enormous benefit to you. Stephen Silver is an insolvency specialist with over 40 years of experience on the job.
For more information, visit our website at www.silverinsolvencysolutions.co.uk, email us at enquiries@silverinsolvencysolutions.co.uk, or give us a call on 0203 961 7169.