All entrepreneurs are well aware that starting a business comes with significant risks. As much as you hope for the best, you must also prepare for the worst. No matter how much planning and hard work you put into it, there’s always a chance of something going terribly wrong and messing up your budget. Next thing you know, you are struggling to keep your business afloat.
Most business owners are familiar with this scenario as they have been there at least once. Obviously, small businesses are the most vulnerable when it comes to money issues. A cash flow crisis can mean the end for them. But larger companies are not immune either. Indeed, they are able to handle financial distress better, but that doesn’t mean they can sit around forever and wait for things to go back to normal on their own. Small and big businesses alike must act fast and take the necessary measures before problems escalate.
It’s important to know that in most cases not everything is lost. When financial setbacks threaten your business and you’re walking on thin ice, there are some options you should consider that might get your company back on track.
Assess your situation
When struggling financially, most entrepreneurs are in a state where they can’t see the forest for the trees. Being so involved in day to day activities and focusing on so many details can stop you from seeing the bigger picture. You could be missing important pieces of the puzzle. As a result, it can prove difficult to have an objective perspective and be able to assess your situation accurately. When you don’t fully understand the extent and nature of the problems you’re dealing with, it’s next to impossible to find a viable solution or come up with a plan to help you overcome the obstacles. You should take a step back, distance yourself from your normal routine and tasks, and try to get an overview of your business’ condition. Asking for an external opinion from an expert can also put things into perspective and help you get a better understanding of your circumstances.
Plan your cash flow
Many businesses, especially smaller ones, experience cash flow issues because they fail to spot cash leaks due to poor management. That’s why you must plan your cash flow carefully. You should know exactly when and from where you receive money and plan when and where they should go if you want to put an end to your financial troubles. Ideally, you should be able to come up with a cash flow forecast, so you know what to expect in the months to come and prepare accordingly. That will help you prioritize payments and manage profit wisely.
However, if the situation is looking bleak and you can’t cover essential expenses, a short term business loan can provide the cash injection you need. But remember, you should take your time and do some research before you apply for a loan, if you don’t want to add to your financial burden. You can use a business loan calculator to help you understand how much a loan would cost your company and see if you can afford it.
Cut down operating costs
You should know the difference between urgent payments and expenses that are not vital for your business and use the money where it’s most needed. Make sure you don’t throw cash away by paying for things and services that you don’t need or that don’t bring your business any value at this point. But don’t start to cut down expenses blindly without analyzing first. That can have negative consequences in the long run. Nevertheless, if the circumstances call for it, you should proceed to reduce operating costs as you see fit. It might not be the right time to pay employees to work overtime hours right now. You might also be forced to reduce working hours for a while, and as unpleasant as that might be, it’s better than closing down the company.
Put investments on-hold
Usually investing in your company is the only way to grow your business and move forward. But you should know better than anyone that timing is everything. When you’re going through a rough patch financially, every dime you spend must be well justified. Now’s not the moment to take risks and make investments in the hope they will pay off in the long run because there might not be a long run if you spend money that you don’t really have. Maybe you don’t need to buy new equipment right away or expand your product line. Since you’re dealing with urgent financial issues, you must play it safe. The only investments you could consider are those that have short paybacks and don’t expose you to major risks.
Maintain an open communication
When a company is experiencing financial difficulties it’s only a matter of time until people find out about it. Transparency is the best policy in this case. You should be honest with both your clients and creditors and lay out the situation just as it is. You don’t want to alarm anyone, but you must give proof of integrity and professionalism. Hiding is not an option. If the word gets out that your company is struggling and you pretend it’s not happening, your reputation will suffer badly and that’s the last thing you want when dealing with a crisis. It’s better to come out and inform the public yourself, so people can hear the official version and stop speculating on the matter.
New circumstances call for new solutions. Your current financial distress could be a result of outdated business management methods. What worked for you in the past might not work anymore, so you shouldn’t remain stuck in your old ways. Times are changing, industries are shifting and you must keep up and adapt. If the techniques you have used so far don’t bring results anymore, it’s probably time for a thorough audit and a major makeover for your business.