Avoid the problems of overtrading

One way you can help prevent overtrading is by keeping a tight control of the money you have going out of your business to pay for assets.

Consider the following to help reduce the risk of overtrading.

1. Lease your assets or buy them on hire purchase

Leasing is a way of acquiring assets by making regular payments, but without buying them outright. Hire purchase is a similar way of paying for assets, but you end up owning them. See decide whether to lease or buy assets.

2. Inject new capital

This could be new share capital, a long-term loan, or the sale of shares to a new equity partner.

The downside of this is that you may have to give up some control of the business, or pay a high rate of interest. See equity finance and bank finance.

3. Reduce the money taken out

This might not be a welcome suggestion but perhaps it should be considered. It may mean not paying dividends. If your business is a partnership or you are a sole trader, it may mean taking less salary, fees or benefits.

4. Cut costs and be more efficient

This is easy advice to give and you are probably already doing what you can, but if you can cut costs further, it should increase your cashflow and cut the risk of overtrading. It should also increase profits. See cashflow management.