Every business goes through difficulties but the key to survival is how you handle them. In this article, we look at what you can do if your company gets into financial trouble, and how to get out of it.
Talk to any experienced business person, and you’ll find that at some point they’ve been through tough times with their company. Although these problems usually occur during the early stages of the business’ life, it can happen at any time. So if you start to experience financial problems, what can you do?
The key thing to keep in mind is simple: don’t panic! Remember that you’re not the only company that’s ever been through this, which means there’s a wealth of expertise out there that can help you get through it.
Identify the problem
The first thing you need to do, but one which is often overlooked by people who haven’t been through tough times before, is simply to identify the problem. Is there enough business coming in? If there’s not enough business coming into your order books, you need to look again at your business plan and work out what’s going wrong. Perhaps your estimates for the total market were wrong, and you need to revisit the amount of business that’s out there. Or perhaps the business is all out there, but you aren’t reaching the right customers.
Cash flow crisis
One of the most common problems, though, is simply cash flow. Companies have been known to go out of business despite full order books, simply because they had a temporary cash flow problem which they couldn’t cover.
If you suspect this is happening to you, there are several options available. First of all, read our article on how to get paid on time, every time for general advice on pushing through invoices. Second, consider using a factoring service for invoicing. This will allow you to get a large percentage of any invoice up front, before it has been paid, for a set fee.
Talk to the bank
Every business should have an ongoing conversation with their bank, and if you’re running into difficulties this long-term relationship will start to pay off.
The key thing to convincing your bank manager that you’re a good prospect is preparation, and it’s worth reading our guide to how to impress the bank manager for tips on preparing effectively. One key thing to remember is not to underplay the amount you actually need to get through. If you really need £20,000 but only ask for £10,000 because you think you’re more likely to get the money, you’re creating a recipe for disaster: you won’t get the money you actually need, and your bank may end up losing the lot.
What if the bank says no?
It’s a fact of the current economic climate that banks simply have less money available to lend, which means that even if your business case is sound you may well end up without the support of your bank. For some, this might signal the end of your business – but before you throw in the towel, consider alternative sources of finance.
As Peter Jones told us last year, the key thing is to always go where the money is cheap – and at the moment, money from a bank isn’t cheap. Talk to friends, business associates and even your family to see if they are able to lend you money, perhaps in return for a stake in the business. Although people are often understandably reluctant to involve friends and family in business finances, if you really believe in your business and are totally committed to making it a success, it can work perfectly well.
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