Many businesses experience financial difficulties at some stage. Small businesses in particular battle to survive, and business advice can be hard to come by.
If your business is in trouble there are a number of things that you can do to try to salvage it. The appropriate measures to take will always depend on the circumstances, in particular how the business is in trouble. Are costs too high? Is no one buying the business’s product? Getting appropriate business advice is crucial.
Cutting costs is probably the first thing business owners and management look at in order to salvage a business. Costs can be cut in a range of areas, but the most common is by lowering a business’s head count, i.e. shedding jobs.
You could also look at whether you should relocate and move into cheaper premises, in order to save on rent expenses. You will need to carefully consider relocation as it may reduce short-term costs but harm your business in the long-term as people may not be able to locate you. This is particularly important for businesses that receive walk-up business from the street. You will also need to consider the exit costs, for example the likely costs associated with terminating a lease.
Apply for Government Funding
There are many government-backed funding programs that businesses, in particular small businesses, can access to help them survive. For example, in rural areas there are rural assistance schemes that assist farmers and other business owners in rural areas. Quite often the funds available from these programs is limited and/or temporary, either based on a certain amount per year and/or number of years that a business is eligible. You will need to do your research to find out which programs apply.
Review your Payment Terms
Cash flow can be a big problem for businesses. If you provide goods or services but the purchaser of your goods/services does not have to pay for 30, 60 or 90 days then that means they probably won’t! Not many people pay invoices the day they receive them, some pay on the day that they’re due and others pay sometime after the due date. The longer your payment terms the longer it will take you to get your money and the less likely you are to get your money!
Review, and where possible shorten, your payment terms so your customers are required to pay you earlier, which in turn will reduce the risk of default, which harms your business.
Make Payment Arrangements with Creditors
Payment to creditors (e.g. suppliers) is the other side of the cash flow equation. Where possible, negotiate to extend their payment terms, so that you have longer to pay them. Alternatively, if there is a risk that you will be unable to pay them when their invoices are due for payment, try to make a payment arrangement with them so that you agree to pay them over time. This should help short-term cash flow, but means that you will have amounts owing in the future that you would not otherwise have had to pay, as they would have already been paid! This must be carefully managed. You will also need to make sure that even if you arrange payment terms the creditor will continue to supply your business, not stop supply until they have been paid in full. Be careful of such conditions, because if they stop supplying you then you won’t be able to make future sales, which will reduce your ability to pay them in the future.
If you cannot work out how to salvage your business, or have taken steps to salvage your business but they have been unsuccessful, then you may need to ask for assistance from an expert, administrator or insolvency practitioner to help you salvage your business. Receiving appropriate business advice is extremely important. Contact LegalVision on 1300 544 755 for expert legal advice.