5 Techniques to Combat Financial Crisis Within Your Small Business
A financial crisis is one of the most dreaded problems that small business owners can go through. There are different factors as to why this can occur, including a recession or an unstable economy, natural disasters, global pandemics, or even poor budget management. Most small businesses are not equipped to survive a financial crisis, and proper planning must be implemented to avoid worst-case scenarios.
While companies require different solutions to overcome an economic slowdown, there are some general solutions that you can execute to make sure that your business stays afloat. In this article, we will discuss some techniques to help your brand survive financial challenges.
Identify the Root of the Issue
You can’t solve a problem if you don’t define what’s causing it. Sit down with your team and identify what could be the issue/s and why this financial downturn is happening. Try to understand whether this matter was caused by an internal or external factor so you’d know how to face it. Here are a couple of steps you can implement to try identifying the root of your financial crisis:
- Collect the data and study the numbers. Start off by taking a closer look at your numbers. Gather all of the information available at hand and see if this has occurred in the past.
- See if there are underlying causes. Take a look at the bigger picture and see what caused these issues. Go through every stage in your business and determine if any of the things you’ve done led to this financial decline.
- Tackle the problem one by one. Avoid taking over everything at once, as this will only cause confusion and an even bigger problem. Learn to prioritize and try to solve the issues one step at a time.
- Offer solutions. Once you have defined the root of the dilemma, list down a couple of solutions that you can apply. This might take a bit of trial and error, so be patient and keep your mind open to suggestions from other team members.
- Monitor the implementations. Closely observe the changes that you have applied and see if any of your solutions are working. Consider using a CRM system so you can keep all of your data organized in one place.
Implement Scenario Planning
Creating possible scenarios and planning for it can help small business owners combat a financial crisis. Here are a few ways to go about it:
- Create a forecast of your cash flow. Ask your accountant for help and compute your budget for the next couple of weeks. Doing this will help you track your spendings every day.
- Take every factor into account. Assess everything that can affect your business, including environmental, economic, and even political factors. Take a look at the past and discover what triggered these problems and how you or other companies were able to solve them.
- Keep the scenarios simple. You don’t have to be ultimately specific when creating these possible outcomes. Keep the framework simple to avoid overcomplicating the process.
Once you have studied the outline, it’s time to come up with a small business strategy for your financial concerns. Assess the likelihood of failure and success so you and the team can handle the issues accordingly.
Cut Down on Non-Essential Spendings
Revisit your spendings and see which ones you can remove from your list. If there are recurring expenses that you are sure your organization can live without, then consider cutting them off to narrow down your expenditure. Take a closer look at your past and current budget to see if there are inefficiencies that you can fix.
Moreover, you can use one simple tool to help you keep track of your projects, campaigns, and budgeting within the company. A CRM plugin can also aid with managing your clients and partners so you can easily track your invoices.
Keep Track of Your Loans
Keeping track of your credit score and business loans is one of the most important things that you should take into account. If you fail to pay off your loans on time, then your credit score and rating will be affected. Having a low credit score will make it difficult for you to borrow money from lenders in the future. Additionally, late payments can also incur huge interests and penalties, which can land you in even deeper trouble.
Listed below are some of the ways you can improve your business’ credit score:
- Report disputes right away. If you see any wrong information that is written on your credit report, then call the agency right away. For example, if you have paid off your bills on time and the agency says otherwise, file a dispute as soon as possible.
- Be diligent when it comes to paying off loans. Properly budget your business’ spendings so you can pay your bills on time.
- Ask your suppliers and vendors to report your credit history. Take a look at your accounts and see which vendors and suppliers you have a good payment history with. Request a report from them so you can add this to your positive payments file.
- Apply for a credit card or additional loan. Having no credit is almost as bad as having a low credit score. This will let the agencies know that you are equipped to pay off loans – just make sure that you do pay your bills on time.
Read the Contracts
Lastly, sit down with your lawyer and accountant and take a closer look at all the contracts that you are dealing with. Read all the clauses including the renegotiation rights, termination rights, personal guarantees, and termination risks. Not reviewing the contract properly can get you in trouble and may cause unnecessary spendings in the future. Additionally, legal disputes can be costly and time-consuming.
Getting out of a financial crisis involves coming out with a detailed small business plan. Plan ahead and create a record of every single spending that your business might have. Note that overcoming a financial crisis can take a couple of months, but with the right strategy, small business owners can overcome this problem. Implement the five tactics that we have discussed above to avoid getting caught in financial trouble.