From low cash, reduced profit margins to too much debt. All these are pointing to one direction for a business: financial trouble.
Every new business experiences problems in the first few years. How these problems are managed is the difference between a successful business and the one that folds up.
The sooner you recognize the threat of business bankruptcy the stronger your position when it comes to putting things right. Identify the causes of the financial mess as that will give you a starting point to solving them.
Below are a few tips you can employ to get back on track when your finance is in deep trouble.
1. Identify the cause of the financial crises
Just as doctors run a diagnosis when trying to treat a sick patient, you need to take a broader perspective on what the real problems facing your company is before trying to fix your financial situation. Having a clearer picture of that will present a fair advantage of knowing how best to possibly arrest the situation.
2. Review your business plan
Having identified the cause of the financial crises your company is currently facing, a possible way out of the crisis must have to be outlined. Some of the bailout procedure proposed might be in contradiction to what you have in your current business plan, hence the reason it should be reviewed.
The new business plan should be put together and agreed upon by as many stakeholders as possible. Honest assessments of where the business’s real strengths and weaknesses lie should be ascertained. The reviewed business plan should reflect a clear vision of how progress can be made towards improvement and eventual sustainability of the business.
Learn how to write good business plans here
3. Cut cost of operations and focus on key areas
In the midst of serious cash flow difficulties and when debt problems are becoming a menace, your small business has to be streamlined and to focus attention on core aspects of its operations.
Review your assets, and try liquidating the non-essential ones to raise funds. The assets could be in the form of a property, tools, vehicles etc. Avoid spending money on things that are not directly related to the operations of your company, pending when the financial crises will be over.
4. Consider downsizing your staff strength
This is one of the areas that might really hurt you emotionally as an employer. Having worked tirelessly to put up a team to grow the business, letting them go could undo all that hard work. But there’s no point keeping a large team when you can’t pay them.
Since you’re focusing on key areas of operation now, it is advisable you let go any members of staff who are not essential to the way the company operates and performs. Getting the right employees to stay and the ones to go can save your small business a lot of money and help launch a successful rebuilding effort.
Also read this article on how to fire people from your small business
5. Look out for alternative ways to raise funds
If you have reviewed your business plan and strategy but cash flow troubles are grinding your operations to a halt, then it’s time to look at alternative finance options.
You can consider the option of taking a soft loan from the bank to help you continue operation. Another alternative is to source for an investor. Your reviewed business plan should reflect your new strategy aimed at reviving the business. This will help your course when applying for loans and most especially bring on board an investor.
6. Set a limit at which you are willing to continue running at a loss before quitting
When your business is in a financial crisis, knowing when to click the stop button might be difficult. But waiting too long will cost you more money and calling it quits too early will kill any chance of recovery.
The main objective of having a business is to make a profit. With that in mind, it’s advisable you set a limit as to how long you are willing to operate at a financial loss. This may be a set amount of money or a specific period of time. If the business does not show improvement or turnaround by the time you reach your limit, it is time to call it quits. Quitting can also mean selling the business.
Do you have other tips that should be on this list? Tell us in the comments.
VConnect is on a mission to make it easier for people to find and buy from good local businesses. We are also helping businesses build a brand and serve their customers better. Join over 5,000 people who get entrepreneurship tips from VConnect every week. Subscribe to our newsletter.