Managing Your Business Through Financial Struggle
If your business isn’t going to plan, your finances can start to struggle. However, some factors can cause businesses to get back on track. Here are a few tips on how to manage your business when you’re going through a financial struggle.
What Causes Financial Struggles?
There are many reasons why companies struggle with managing cash flow, but figuring out why your company is losing money is half the problem. The reasons could include not setting a clear budget, having inconsistent cashflow, not preparing for unforeseen circumstances or having too much debt. Once you pinpoint the reason for your financial struggle, you can start to manage your business effectively to get through it.
Look at How You Can Survive Now
The first step in turning around your business’s financial situation is to ensure you have immediate survival by making sure the funds needed to continue running your business in the short term are available. You should therefore prepare a financial forecast to determine short and long-term cash flow needs. You will then discuss these needs with a lender or financial partner to negotiate payment holidays.
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In the short term, you need to address the balance sheet, obtain subsidies or capital payment holidays, and reduce your costs to maximise the cashflow. These changes can help your company manage during the short term.
Declare Bankruptcy or IVA
Both bankruptcy and IVA (Individual Voluntary Arrangements) are both forms of insolvency, but they work very differently from each other. They are both great options if you’re feeling trapped by debt as they legally write it off. Choosing bankruptcy or IVA depends on how you want to proceed. IVA allows you to make affordable payments for an agreed period of time and is a legally binding agreement between you and your creditors. Bankruptcy involves selling your assets (possibly your home or car) to pay your creditors.
Either solution is a great option for those who are going through a financial struggle in their business.
Review Cost Structure
The next step in managing your business through financial struggle is to review the company’s cost structure based on sales projections. You should look at the fixed and indirect costs which may increase year over year. If costs aren’t necessary to the running of your business in your financial struggle, they are worth reviewing.
Although the costs may have been helpful during better periods, they may not be necessary now. Making strategic cutbacks can help to get your business back on track.
Run a Diagnosis on Operations & Finances
Next, you need to examine the financial and operational health of your business by doing an in-depth review of the company’s results to understand trends that come up. Pick up on things like if margins are decreasing over time, then look to figure out why.
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It’s extremely important to sit down with a professional to help target solutions. It’s also important to be realistic when setting objectives as, although reducing costs is easy, improving sales is much more challenging.