Post-pandemic, there are many companies facing financial crisis. Even those existing for many years. There is a different financial crisis timeline for every company experiencing turbulence. Avoid a business financial crisis with these six proven steps...
Is your brand nearing a business financial crisis? Here's how to avoid it.
No one ever said that building a successful business is easy. It takes more than just a good idea to make it work. You need to put a lot of time, energy, and money into growing a business. Even then, you have no guarantee things will go well.
Effectively managing your business finances is vital if you want your business to be successful. Unfortunately, sometimes things don't go as well as you hope. You might see your company in financial trouble. Maybe you're in debt or you can't see how you're ever going to make it out of the red.
If you feel like your business is in big financial dire straits, you need to know how to reverse the trend and get back on track. Here are six strategies to overcome a business financial crisis.
Take A Hard Look At Your Expenses
When your business is in financial trouble, one of the first things that you should do is take a look at what you're spending and see if you can reduce your expenses.
- Where are you wasting money?
- Are there any ways that your business is leaking money without you realizing it?
Start by looking at how much you spend in all departments of your business.
- How much do you spend on staffing every month?
- How much money is spent on supplies or materials?
- What's your marketing budget?
You need to define every expenditure and start looking for ways to save. Maybe you have too many employees. Perhaps you're wasting money on marketing campaigns that aren't delivering results. You could be spending unnecessary amounts on expensive supplies when cheaper options are available at a similar value.
Closely monitor anything that could be a drain on your finances. For example, if you have a product that you weigh out on your premises, are your employees weighing out too much?
Going just a tiny amount over what they should be measuring could mean you're slowly losing money every day as you give away a tiny amount of your product for free. It all adds up. So it might be a small amount one time but becomes much larger if you multiply it.
Make Sure Your Pricing Is Right
Poor pricing structures spell disaster for many businesses. Guessing at pricing or going on a gut feeling of what people are willing to pay could kill your business.
For example, maybe you need to price a hotel room or a dish in a restaurant. Simply guessing at a random price could leave you in the red. You need to add up all of the expenses that are involved in making that dish or providing that hotel room (including labor) so that you'll make a profit.
If you've priced your products or services by choosing a ballpark figure or copying your competitors, it's likely you don't have a good idea of how much you should really be charging.
Of course, if you take a close look at what it costs you to provide a product or service and it's more than your competitors or more than what your customers are willing to pay, you also have a problem. This could indicate that you need to reduce your costs so that it's less expensive for you to sell your products or services. Otherwise, you need to be able to justify why your prices are higher.
Find New Sources Of Revenue
When your cash flow is out of whack and you don't have enough money coming in, you might need to look for new ways to make money and diversify your business. Many businesses are able to diversify by making better use of existing resources or skills.
For example, your business might have space to use for specific services. If you run a restaurant, hotel, or store, you could rent available for private events or for groups and professionals to meet. You could run your own events or find other ways to offer new services using the extra space.
Consider your skills and resources. Equipment could be rented out when you're not using it. You could create new services that you're able to offer utilizing existing skills within your team, that would appeal to your existing customer base.
You could also offer new products or packages, expanding your range to offer more to your customers.
Deal With Debt And Avoid Bankruptcy
A certain amount of debt is typical. Borrowing money can help your business to grow. However, debt becomes a problem when you're struggling to pay it off. It can pull your business under if you can't get on top of your debt and adequately manage it.
You might end up forced to consider bankruptcy. If your business liability is separate from your personal liability, it will at least affect your business and not your personal finances. However, it could still lead to the end of your business if you have to file.
You can learn more about the types of business bankruptcy from Leinart Law Firm or a similar firm near you. Bankruptcy lawyers can help you:
- Avoid bankruptcy litigation
- Keep your business solvent
- Explore strategies for getting rid of debt
Bankruptcy is one option that could help you to deal with debt, but it should usually be a last resort.
It's important to explore the other available options for dealing with business debt. There are ways to reduce your debt or to manage it more easily. Simply having a plan for repaying your debt can help you.
Begin by talking to your creditors and working out a payment plan. Take stock of all of your debts, how much you owe, and the interest rates. You can then decide which ones are most important to pay off first. Consider multiple strategies to achieve your goals.
Make More From Existing Channels
Introducing new products and services can help you make more money, but you don't necessarily have to do that to make more sales. Focusing on your existing products or services can often be the best and most affordable way to make a change. You can step up your sales and marketing to encourage more sales, get existing customers to come back, and find new customers.
Holding a sale might seem counter-intuitive, but it can help you to get out of the red. As long as you're still making a profit, it can really make a difference. It's a particularly useful tactic if you have a surplus of inventory.
Instead of it taking up space, drop the price to sell it quickly. If you have any products that sell quickly or services that are in high demand, you could take the opposite approach and raise your prices.
Your instinct might be to stop spending money on marketing and advertising when your business is in financial trouble. However, this isn't going to help you if you want to keep making sales. You need to keep marketing to both existing customers and potential new customers.
There are more affordable ways you can market your brand and get a good return on your investment. Email marketing, for example, is very effective. Offer a discount code to your existing customers to encourage them to buy from you or refer you to other people.
Hurdle Business Financial Crisis: Collect Money Owed
If your business is owed money but people aren't paying, it's time to collect. It can really affect your cash flow if you're waiting for customers to pay you.
You don't want to have to take legal action to get them to pay you, so it's important to have other tactics ready. It's useful if you have a late fee you apply when a customer is late paying their invoice. If you have one, actually bill it.
However, it's also a good idea to use some positive incentives to get people to pay on time. For example, they might get a discount if they pay early or pay their invoice on time. They could also earn something else when they pay:
- Reward points
- Bonus product
- Free services
These things can be more encouraging than threatening to charge more or apply negative consequences to people who pay late.
Final Thoughts On Avoiding A Business Financial Crisis
It's tough when your business is in trouble, but it doesn't have to be the end. There could be be to turn things around. Start with those listed above.
