Today’s businesses are operating in tough economic times, and many are feeling the pinch. A huge amount of start-up and entrepreneurial guides are geared towards strategies for achieving growth and success. But there aren’t as many that focus on the darker, more challenging sides to running and growing a successful company.
The life of an entrepreneur is not always one of unwavering motivation and enthusiasm. Many entrepreneurs and business owners have found themselves in dire financial straits at one point or another. Primarily due to their credit running dry or their cash flow being negatively impacted by any number of different factors outside of their control.
There are few situations more stressful than running a business that is starting to run out of funds—and out of credit.
There are myriad reasons this can happen. Some entrepreneurs overestimate how quickly their products would come to market, while others trusted a supplier or manufacturer who over-promised on their delivery times. Many others have found themselves in hot water due to the recent economic churn, and have had to think outside of the box very quickly to keep their enterprises afloat.
There is no golden rule for “fixing” your business or your situation as a whole when your credit starts to run dry. However, there are plenty of proven strategies that you can adopt. These help to keep your business afloat until you have enough funds coming in to pay off your debts and continue to focus on your long-term growth.
Read on as we break down the strategies you should consider implementing to make it through when your business credit runs dry.
Don’t Give Up Just Yet
Watching your credit reserves run dry is a stressful situation. But just because your business is struggling right now does not mean that it has failed. Consider all the successes that you and your business have achieved since it launched. The list of milestones may be longer than you’d think.
Many companies, especially younger businesses, run into financial obstacles from time to time. Lack of financing and investment, slow sales, and economic turmoil can all wreak havoc on your operations. But the truth is that these are often temporary situations that can be remedied with the right approaches.
Listing your past wins is a great way to motivate both yourself and your team, your suppliers and your vendors, and to remind them of exactly what your business is capable of. You can also use this list as a traction tool to attempt to raise additional capital from your investors and stakeholders.
Recognize the Factors Within Your Control
In any business situation, there are elements that you have control over, and some that you don’t. Identify which factors you can control and focus your efforts on optimizing them.
They may seem small, but processes like managing communications with your direct reports and diligently collecting receivables can make a big difference when your credit account is in the red. This strategy can help to ease your burdens and reinforce the fact that you do indeed have some control over your financial standing.
Cut Your Costs
When you have confirmed that you’re in financial trouble, it’s time to analyze your expenditure.
You can start this process by transparently figuring out how many weeks, months, or years of operation you have left if your situation does not improve. If your bills have accumulated rapidly and you only have two or three months left, skip past cutting costs and focus on other strategies instead.
Alternatively, if you can reduce your operational expenses by a quarter, or perhaps even a third, you can extend your business’s theoretical lifespan and buy yourself time.
Experts recommend performing a top-down P&L review with your managers as soon as possible, pouring over each month for the past six months to a year. This will allow you to identify every one of your recurring costs and eliminate as many superfluous expenses as possible.
It’s important to repeat this review process monthly and to assess how effectively you are reducing your recurring costs. Perform the same review each month and try to identify even more new ways to reduce your costs.
If you have physical business premises and are struggling to pay your rent, contact your landlord to negotiate. It’s crucial to be open and honest. Address the situation proactively by speaking with your landlord in person, explaining your temporary financial challenges, and asking them for assistance. This could be a few months rent-free, which you could pay back with interest.
There’s no guarantee that your landlord will be sympathetic, but they might be understanding. Especially considering that finding new tenants can be costly and time-consuming. Brainstorm with your landlord to find innovative ways of finding a middle ground that reduces your cost structure and gives you some time to make more money.
You can also approach your vendors and ask if you could continue to use their services and pay your debts when you can. Vendors may have less flexibility than landlords, but if you are a major client, many will be willing to make special arrangements to work around your temporary challenges to retain your business.
Consider Reducing Your Staff Force
If your business credit has run dry and you have no other options available, you may have to consider letting some of your staff members go. Salary expenses are one of the biggest costs any business faces. If push comes to shove, you’ll need to reduce this expense to stay afloat.
There’s no easy way to let some members of your team go. But business veterans recommend letting go of the lowest-performing staff members and those who generate the least value for your organization. You should cut non-essential staff first, if possible, avoiding making cuts to your all-important sales team.
Earn More Revenues
This is an ideal way to make it through dire financial straits, but it isn’t always easy. In most situations of capital constraint, a 30% sales increase is more than enough to get your business back on track.
You can super-charge your revenue streams in several ways. You can expand your product ranges, employ more inbound marketing techniques, make your sale prices more competitive, and measure as many key customer metrics as possible. The latter will allow you to use data and statistics to optimize your operations to maximize sales and keep customers coming back.
Closing Isn’t The Only Option
Running out of business credit can be extremely stressful. But it doesn’t mean that you need to close your doors just yet.
Consider your past wins and use them as inspiration to make whatever changes you need to keep your venture afloat.