If you run your own business and it has all been plain sailing, then you are one of the lucky few. Most businesses have their peaks and troughs, and most must fight their way out of a crisis or two. The types of businesses most at risk of experiencing a crisis are the small startup businesses. When you have only a few customers, for example, one large customer failing to pay can put the business at risk.
They say that setbacks are a great learning experience. But that’s small comfort when you are looking at the potential demise of your business. So, here are ten practical tips for any business owner who is struggling with a business in crisis.
1. Face the Facts
The first thing to do when your business hits a rough patch is to accept the reality. You can look at the figures as much as you like. You may be able to convince yourself that things are not as bad as they appear to be. But the only way you are going to dig yourself out of a hole is to start shoveling! If you ignore a problem and hope that it will get better, it is likely that the problem will only get worse. The time to act is at the first sign that you have a problem.
A quick and accurate diagnosis of the situation is essential for success. Companies enter financial distress for a wide variety of reasons. They are unlike to emerge successful unless that challenge has been addressed, either through fixing the problem or finding an alternative. Core Market collapsing? Then you will need find a new target market and build up distribution. Supply chain disrupted by tariffs or an industrial accident? Then you will need to find another source of supply. Have you lost key people to a competitor, who tried to take their accounts with them? They will need to replaced and the customer relationships defended.
My principal role as a restructuring adviser is to assist management in facing the true facts.
2. Keep a Cool Head
You are not alone, so don’t panic. Businesses face cash flow shortages and downturns in sales all the time. And, many of those businesses survive and go on to prosper. Whilst swift action is essential in a crisis, so too is a clear head. Make sure that you don’t make rash, knee-jerk decisions that you will regret later. Analyze your options as you would when making any business decisions. Consider all the ramifications of the decisions that you are about to make.
3. Keep Your Customers Happy
You may need to make some tough decisions to save your business. Even so, you must still service your existing customers. Don’t let the quality of your service suffer as a result of a business crisis. If you start to lose more customers, your revenue will drop, and then you won’t have the cash flow to fund the recovery.
4. Don’t Allow Pride to Influence Your Decisions
Having your sales team drive luxury cars is great for their ego, and for yours. But there are cheaper alternatives. It’s a luxury that a struggling business can’t afford. So too is the prestigious, downtown office that you may be operating out of. If need be, you will have to swallow your pride and move your office back to where you started. Back in the basement of your home.
5. Cut Out the Dead Wood
No one enjoys firing people, but in a crisis, you must cut costs fast. Take a close look at your employees and think about where you can make some cutbacks. Try to keep productive employees who earn business revenue. Unless that is, there is not the demand for your products to keep those employees.
6. Cut Out Nonessential Overheads
Be brutal about cutting non-essential costs. Anything that doesn’t add real value to the business is a burden on your cash flow. Analyze your accounts to see what you are spending money on. Even if you cut out small items of expense, it will reduce the amount of cash flowing out of the business.
7. Liquidate Stock and Assets
Look at your stock of finished goods. Can you hold a sale and liquidate some of that stock? Consider selling any assets that don’t bring in cash as well. This may seem like an act of desperation. Even so, it may bring in enough cash to see you through a tough time. Many businesses that go into liquidation still manage to pay all their creditors. It would be much better if you liquidated some assets now and avoid the business having to close.
8. Get Advice
qSeek advice from your accountants and other business people that you trust. Advice from a professional adviser may highlight alternative courses of action. It may bring new ideas to the table that you hadn’t thought about.
9. Don’t Throw in The Towel Too Soon
When a business is in trouble, it places an immense strain on the business owner. It can feel like every day is an uphill struggle that you would rather not face. You may feel like it would be better if you closed the business and started over again. Remember, though, that every business has value. That value includes the goodwill of customers and the value of the brand. These things take time to build, so don’t be too hasty to discard them.
10. Don’t Throw More Money at a Doomed Business
It is true that you must not quit too soon. But it is also important that you don’t invest more money in a business that has no hope of recovery. If you provide a cash injection out of your own pocket to sustain the business for one month, you may have to do the same thing the next month. It is a very tough decision to close your own business. But sometimes it will be the only sensible course of action to take.
When you are steering your business out of a crisis, you must be firm. Businesses do not find their own way out of difficulties; they get managed back into good health. Some small business owners may be too close to the problem to fix it themselves. So, seeking advice from professional accountants or insolvency experts will help. For an entrepreneur, a failed business can seem like the end of the world. But, even some of the most successful entrepreneurs in the world have failed at least once.