In these trying times, economic hardship may seem too overwhelming for companies to handle. With consumers tightening their purse strings and jobs becoming harder to find, the ability of a business to stay afloat can be put in jeopardy. Though there is no one solution that will guarantee success amidst this crisis, it’s important now more than ever – with resilience & creativity – businesses fight back against financial troubles! If you’re the owner of a small business that’s going through a rough patch, you might be feeling like all hope is lost and that it’s better to call it quits before filing for bankruptcy. But before you start waiving the white flag altogether, read through these 5 practical tips for small businesses going through financial hardship.
What you can expect in this article:
When your margins are shrinking, you should start analysing your company’s costs and then reducing them wherever possible.
How much are you paying for labour?
What stock is just sitting on the shelf, collecting dust?
Are you spending a small fortune on office supplies?
Lots of subscriptions to services you are not utilising?
Too much money on advertising that doesn’t bring you a ROI?
Take a look at all your expenses, reassess your business budget, and tighten your belt on spending. What I’ve learnt from doing this in the past is that there’s no purchase too small or insignificant. You might be surprised by how much you can save by simply switching from fountain ink to generic ballpoint pens!
Review your suppliers
When evaluating your expenses, it’s important to evaluate your business-to-business (B2B) transactions for two reasons.
First, if you’ve had a long-standing relationship with your vendor, there’s a high probability they’ll be willing to work with you during this economic downturn by offering an instalment agreement in which you repay them back over time.
Secondly, maybe the prices you agreed to years ago are outdated, and you can find way cheaper products from another supplier who can beat the price. It’s worth making a lot of small savings – they really add up and can make a huge difference.
Remember the bit about those overstocked items sitting on the shelf? What other valuables do you have laying around? Maybe there’s a surplus of equipment and machinery that you no longer need since production has slowed down.
Or, perhaps you’ve switched to a remote setting in light of the pandemic in 2020 and no longer have a need for office furniture or a company car fleet.
From your stock to your assets, these items hold a value which you could liquidate to help keep the company afloat.
When business is looking bad, tally these items up and use them to calculate the quick ratio:
Quick Ratio = (Current Assets – Current Inventory) / Current Liabilities
This formula is used to evaluate how quickly you can repay your outstanding liabilities should vendors and lenders come knocking at your door.
Ideally, the ratio should be 1:1, meaning that for every $1 in liabilities, you have $1 to cover the cost.
Check to make sure your numbers are looking good, and if they’re not, it might be time to start liquidating to prevent going into further debt.
Research relief programs
In response to the pandemic that wiped out the economy, the government introduced financial relief programs for struggling businesses. If you’re in the USA, you might be able to secure federal funding through the Paycheck Protection Program (PPP), which is part of the CARES Act that Congress signed into legislation.
Also, you may be able to find tax relief through the Internal Revenue Service (IRS). Seek the help of one of the accountancy organisations uk has to offer, or an accountancy helpline like ICPA’s free tax helpline for businesses. “One problem solved by one telephone call to our helpline in one month could save the caller the membership subscription alone.“
For example, if you received a penalty for trust fund recovery because you failed to pay income taxes this year, the IRS may be willing to offset or waive the penalty. At the very least, they can work with you to create a repayment agreement that alleviates the financial hardship.
Seek help from lenders
If you don’t qualify for government funding, applying for a small business loan from a bank or lending institution may be able to give you the breathing room you need to get back on your feet and business resumes as usual. Be sure to read the fine print, and if possible, borrow a family or friend before you get locked into a high-interest rate loan.
In business and in life, it’s always better to be proactive versus reactive. Once you overcome these obstacles, do your best to set aside an emergency savings account so you know there’s a security net in place whenever rough seas are on the horizon.