In an ideal world, your business will experience steady growth from the moment you launch it until the moment you retire or sell it on to a larger corporation. In reality, your business is likely to experience a number of challenging times when sales experience unexpected falls, or new products are delayed meaning that you level of working capital starts to get extremely low.
Most such financial setbacks are usually temporary, and the best way to survive them is to have the right strategy in place well in advance. Read on for a few tips on what to do during a dry season.
Discussing financial difficulties is never comfortable but if your business is in trouble because, for example, a key customer has gone out of business, the longer you delay taking any action, the more serious the problem is likely to become. Develop a strong relationship with your bank and undertake regular reviews of your finances, so they are always able to see the bigger picture rather than just the immediate crisis.
If you haven’t already worked your way through your budget to look for places where savings can be made – something you should be doing on a regular basis regardless of the financial health of your company – now is a good time. Interrogate every item on the budget to ensure the expenditure is necessary and that it is providing a good return.
Prioritize your bills
If your business is struggling to create sufficient cash flow, it’s important to prioritize your bills so that the most important ones are paid first. Although it is never a good idea to pay your bills late if you can possibly avoid it as this can damage your future credit rating, there will be some that will be less damaging to delay than others. Identifying which bills you can pay a little later will enable you to keep hold of your working capital for longer – hopefully long enough for the crisis to pass.
Talk to the taxman
Late and unpaid taxes are one of the most common causes of financial issues for small businesses. If you are struggling to find the necessary funds, it may be worth hiring an experienced tax lawyer to act on your behalf and have any back payments broken down into manageable installments. This can now be accomplished through the IRS Fresh Start program which is designed to make it easier for individuals and small businesses that owe back taxes to pay what they owe while avoiding the usual penalties and tax liens.
Cut all unnecessary borrowing
Regardless of how your business usually operates, if you are facing any form of financial difficulty, it’s a good idea to cut down your borrowing as much as possible until you can be absolutely sure that your finances are likely to get back on track. Unless expenditure is capable of generating sufficient cash flow to pay for itself and can be made from existing funds, you should defer making any new purchases until the crisis has passed.