Running a business successfully is one of the most difficult challenges you can undertake in your life. Managing a company is never as easy or smooth as you think or hope it will be. There are constant obstacles and issues to overcome professionally and personally. More businesses are struggling now than ever before due to the fallout of recent events including inflation, labor shortages, supply chain disruptions, new legislation, and changing consumer behaviors.
When you are trying to keep a struggling business running, it can be tempting to give up, declare bankruptcy, close the doors forever, and move on. However, it is possible to save a floundering business with the right financial strategies.
Your company is worth saving! It won’t always be easy, but you can salvage your business and turn it around. These 5 top tips can help your company survive and thrive even in a tough economy.
1. Take a Look at Your Overall Financial Picture
No matter how depressing the picture is, there is hope. Colorado-based executive, entrepreneur, philanthropist, and civic leader Kent Thiry took on a company described as being in “financial shambles” and not only kept it from going bankrupt but took it all the way to the Fortune 500. However, hope by itself is not enough. You need to fully understand your economic situation and execute a business recovery plan.
Start by determining whether your business has enough cash flow to pay its bills. Does your business have enough money to pay for emergency expenses? Is your business paying its bills on time? If you have personal debt related to the business, are you making your payments on time? Does it have excess inventory you can liquidate or accounts receivables you can cash in on quickly if you offer a discount? If you are struggling with any of these issues, then you need to find ways to cut your costs.
Hiring a CFO, CFA, CPA, and/or bookkeeper can all help to get your finances back on track. Sometimes financial management software is all you need to help you understand the big picture of where you can cut expenses or earn more income.
2. Reduce Your Expenses
Start by examining your largest expenses. There is a no “latte solution” for most struggling businesses. You need to identify areas where you can make a big difference in your budget. If you are leasing your facility, talk to your landlord about lowering your monthly payment. Look for ways to reduce your utility costs. Can you have more employees work from home? Can you switch to a less expensive phone or internet service? Can you reduce your hours of operation without losing customers? It doesn’t hurt to ask, negotiate, and experiment to help save precious pennies.
Inventory your equipment methodically. If you are leasing anything you aren’t using, get rid of it. Shop around for a lower-cost provider for the equipment you do need. Consider whether you can reduce staff or replace full-time workers with part-time workers.
3. Increase Collection Efforts
If you allow customers to make purchases on credit, go through your accounts receivable. Identify customers who are late on their payments and increase your efforts to collect. This may boost your business cash flow quickly, even if you have to offer them a discount as incentive to pay faster. Some money is better than no money when you are trying to rescue your small business from the brink of bankruptcy.
4. Talk to Lenders and Suppliers
If you purchase supplies on credit, talk to your suppliers about reducing your payments until you get back on your feet. Do the same with lenders and other creditors. It doesn’t hurt to ask and everything is negotiable in the world of business. Most people and companies you owe money to would rather get some of it back or get it back in installments than get none of it back at all if your business goes belly up and bankrupt.
5. Pay High-Priority Debts First
If you can’t make all your payments and negotiations haven’t worked, you may need to choose which payments to make. Pay your taxes first, payroll second, and bills that are 60 days or more overdue third. After that, pay for services you need to keep your business running, such as your utility bills and rent. Next, pay your suppliers, secured debt, and insurance. Unsecured debt, such as credit cards, is your lowest priority. Most credit card companies realize they are going to get paid last when businesses are struggling to pay bills. This gives you some negotiating leverage to work out reduced payments or lower interest rates.
No matter how bleak your financial picture is, there are steps you can take to improve it. Be proactive with your business. The longer you wait, the harder it will be to save your company.