Running a successful business can be challenging regardless of your industry. Your costs and debt can spin out of control as you scale and expand. This can also be true if you’re not actively managing cash flow and outstanding accounts. If you’re in financial strife, seek advice immediately, even as you take measures to reduce costs and outgoings.
Accurately track finances
In your personal life staying on top of finances can prove to be challenging. Ask any parent; $1.4 billion worth of pocket money was paid to children under 20 according to recent a survey. A business however cannot be managed as casually as a weekly allowance.
Start by ensuring that your financial records are accurate and up to date. Inaccurate, out-of-date books make it impossible for you to understand what’s going on in your business. Work with a bookkeeper, accountant, and/or a tax advisor to obtain a clear perspective of what’s happening to your cash flow, incomings, profit, and expenses, and to find out how you can minimise your tax burden. You’ll then be informed and well-placed to make smarter strategic, operational, and cost-reduction decisions.
Negotiate with suppliers
If you’re having trouble meeting your monthly financial obligations on time, try negotiating with suppliers for optimal payment terms. Having built up a long-term, trusting business relationship with them, you could work with your top suppliers to obtain better payment terms to smooth out your cash flow cycle. In effect, this ends up being an interest-free loan for you.
Prepare for seasonal variations in demand
If you’re in a seasonal industry where demand varies throughout the year, make sure you have a strategy for working to seasonal variations in demand. You could introduce new product lines for low-demand seasons or plan to have plenty of cash to survive off-peak periods.
Recover outstanding accounts
Chase up your invoices and escalate outstanding accounts with frequent contact with customers when they fail to pay on time. Slow-paying customers can be a considerable drain on cash flow and make it hard for you to meet ongoing debt obligations. Incorporate payment conditions into your sales agreements and apply interest penalties for overdue accounts where appropriate. Use a debt collection agency to take care of long-overdue accounts where necessary.
At the same time, you can accelerate cash flow by offering a range of convenient payment terms for your customers. These make it easier to pay and can speed up the cash flow cycle for you.
A big part of business turnaround is analysing your expenses and operating costs and finding out what you can cut back on. You might be able to switch providers or suppliers for ongoing costs such as insurance and raw materials if you find a more competitive offer. Your business could also reschedule stock purchase periods to align outgoings with incoming cash flow.
Another option for minimising expenses is eliminating certain ongoing purchases that you don’t really need for your business. You could reconfigure products or services to cut out these costs, shift to a location with lower leasing costs, leasing out unused offices or space, or changing your production process to minimise costs. Minimising your expenses requires analysing your accounts and getting creative and flexible about making changes.
Offload unused assets
Once you’ve analysed your business records, you’ll be able to identify any unused assets that you could sell to realise cash. Getting rid of these assets eliminates unnecessary storage costs. You could lease out equipment or assets to generate another income stream at the same time.
Markdown excess stock
Move excess or surplus stock by marking it down helps you generate extra cash immediately. As you do this, you can end up selling more of your other products as your discounts highlight your other products to customers.
Review your current debt products and consider whether your business would be better off consolidating multiple debt products into a single loan. Compare interest rates, costs, and other terms and conditions as you shop around. Consolidating debt can sometimes bring the same benefits for businesses as it does for individuals.
If you’re having trouble with late-paying customers, consider factoring your invoices to speed up your cash-flow cycle without having to use debt collection services. Factoring companies buy your invoices for an advance payment of 80%, 90%, or a similar percentage, so you don’t have to wait for the customer to pay. Once the invoice is paid, you receive a rebate amount. You can factor any invoice, not only overdue ones.
Consult insolvency and business-turnaround experts
Seek the advice of insolvency experts as soon as possible so that you can explore your options and make sure you’re complying with the relevant regulations, such as insolvent trading laws. Insolvency and business-turnaround experts could give you invaluable guidance on restoring your business to profitability and insolvency procedures such as voluntary administration, which could eventually lead to business turnaround.
Businesses that are in financial strife have a number of options available to them and as the owner or director, you’ll want to ensure that you explore these with expert advice. Acting quickly gives your company the best chance to turn itself around where possible.