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No business owner wants to consider what might happen if their business begins to fail, but having a contingency plan in place is a wise move for even the most buoyant, successful business.
Should the worst happen, it’s all too easy to lose focus. Having a clear and effective vision when the going gets tough can help turn a business around and avoid all but the most essential measures.
Though no situation is ever the same between businesses, keeping a few basic principles in mind can be the difference between bringing about positive changes and exacerbating the problem:
Timing is crucial when dealing with businesses in distress. You need to act quickly and decisively to avoid insolvency or bankruptcy. A business only runs out of cash once. Recognition of early warning signs that your business is in trouble will ensure you get the help you need to save your business.
Cash is king
The ability to generate cash is the most important key to business success. Without strong, positive cash flow a business will never thrive and grow. While it may be normal to experience fluctuations, you need to be able to balance the high and low cash flow seasons. If you are unable to convert accounts receivable and inventory to cash, check the credit terms you are granting for your accounts receivable and check the quality of products being delivered to you. You must be able to convert these promptly to cash as this can also affect your cash flow.
Take step back
Many businesses are unable to take a step back and analyse its operations. Directors, managers and heads of businesses are often too close to the day-to-day processes to see the bigger picture. Take time to place yourself in different areas of the business and observe where problem areas lie. This will also aid you in identifying your business’ core strengths and areas that could be key to bringing about a recovery.
Have a plan
There is no easy fix for a business in trouble but a lack of direction and purpose can exacerbate the situation even further. Every business needs a plan of action which is agreed upon by as many stakeholders as possible. Honest assessments of where the business’ strengths and weaknesses lie allows for a clear vision for the future.
Focus on core operations
In the midst of serious difficulties and when debt problems are beginning to spiral out of control, a business has to be streamlined and refocus on its core business.
This might mean liquidating parts of the business to raise fund. This could be property, vehicles, tools, inventory or anything else.
As difficult as it may be, it is often vital for a business in trouble to make redundancies and let go any members of staff who are not essential to the way the core of the business operates. At the same time, find and keep talented people who will make positive changes to the key operations.
Similarly, review all relationships with suppliers. End the relationships with ones who do not make crucial contributions to your business.
Find other ways to raise finance
You can raise cash by refinancing assets, securing short-term loans or selling invoices through factoring or discounting processes. Any such action should of course only be taken after careful consideration, but if cash flow troubles are promising to shut the doors of your business for good then alternative finance options can help them regain some essential momentum.
Prevention is better than cure
Put in place processes to identify any issues well before they have an opportunity to snowball into something far bigger and more dangerous. Make sure you have your long and short term business plans and goals in place. Don’t wait for things to improve as if by magic. It’s not a solid business strategy whatever business you’re in and can prove to be very dangerous.
Regardless of how bleak the situation might appear, recognise that you are far from being the only company head ever to face the kind of financial difficulties you’re dealing with. In fact, making positive steps to address inherent flaws in the business is an opportunity to find new focus and rebuild upon more solid foundations. If correct measures are taken, a business in distress can become a leaner, healthier and more profitable entity with potential to far outgrow its previous guise.
If all else fails
Sometimes, businesses do face formal insolvency proceedings and these are far better managed if professional help is sought at the earliest opportunity. It is possible to restructure and save some, if not all of a business. If a business cannot be saved, there can be lots of options to successfully manage its closing and ensure the best possible outcome for business owner, managers, employees and creditors alike.