The economic crisis going on right now is a situation that is beyond the control of individual companies.
The hardships may be enough to leave a business bankrupt, since in a situation like this, consumers simply stop buying because they have less money or they’re affected by unemployment – that is, if they can even purchase anything at all pending the widespread business closures.
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 five tips.
There might be ways you can save money to cut the bleeding so your doors can remain open for months to come.
When your margins are shrinking, you should start analyzing your company’s costs then reduce them wherever possible.
How much are you paying in labour?
What stock is just sitting on the shelf, collecting dust?
Are you spending a small fortune on office supplies?
Too much money on advertising?
Take a look at all your expenses, reassess your business budget, and tighten the belt on spending.
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 your during this economic downturn by offer an installment 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Secondly, maybe the prices you agreed to years ago are outdated, and you can find way cheaper products from another supplier who can beat the price.
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 and no longer have a need for office furniture or company car.
From your stock to your assets, these items hold 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 debt.
Research Relief Programs
In response to the pandemic that’s wiped out the economy, the government has introduced financial relief programs for struggling businesses.
You might be able to secure federal funding through the Paycheck Protection Program (PPP), which is part of the CARES Act that Congress recently signed into legislation.
Also, you may be able to find tax relief through the Internal Revenue Service (IRS).
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 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.