When a business is struggling on life support, what things can owners do to save their company?
It depends on a lot of factors, but we can assume there is a lack of liquidity, which isn’t the cause, it is the result. That could be the result of low sales, low sales pipeline, lack of materials (if manufacturer), too much payroll, owner entitlements, imbalance of a cyclical or seasonal business (management issue) and a whole bunch of other things. So here are a few tips on how to save a failing small business and stopping the bleeding while conserving cash:
- Making payroll needs to be the number 1 priority here. But the owner needs to really analyze how long this rough patch will be to determine if, when and where he or she needs to make cuts. Temporary furloughs, cutback in hours and layoffs should all be on the table. Then do it.
- Shipping the product (or service) as promised is also a priority. Whatever it takes to get the goods or services to the customer in order to generate more cash.
- Talk to your vendors. Let them know they will get paid but you need their help. Be honest and provide a projection of how long you expect this rough patch to last. If you have already made promises that you didn’t keep, this won’t help as they won’t believe you. If you are already on COD or CIA, concentrate only on those vendors who will work with you. Pay down your debts to them first a little at a time. Talk to them frequently. Put those who have you on COD and CIA on the end of your list for paying down what you owe. I don’t recommend you stretch your vendors out further. Your relations are probably already strained. Keep in the best light for those vendors who are still providing terms.
- Keep a close watch on your accounts receivable. Make sure your customers aren’t stretching you out. Anyone over 45 days old should receive a phone call from your accounting department. Get commitments on the specific date you will be paid.
- Deep dive your sales pipeline. What prospective business is real or just sales optimism? Make your sales force accountable. Are they really out there selling or doing damage control? If they are doing the latter, you have bigger problems, probably related to your delivery (operations). You may have quality, scheduling, product availability or many other issues that stop the orders from becoming sales. Find out why. Listen to your customers.
- What are you taking out of the business? If you are taking out additional cash beside your salary, you need to stop. Many private business owners run many personal expenses through the business. After all, it is your right. You own it. You need to lose this attitude as it is helping to drive you out of business. Live within your means. If you lose the business, then what?
- Cyclicality and seasonality demand adjustments to your inventories and close watch on your sales forecasts. Seasonal layoffs, reductions in overtime and many other personnel control activities will go a long way to reducing your cash needs.
- Use a rolling cash flow forecast and update it daily. It must go out at least 90 days. The next 30 days should be in detail with all customers expected receipts and vendor payment expectations. Don’t forget to include your payroll.
- Don’t go it alone. If your accounting staff is not up to the task (aka you only have a bookkeeper or a weak controller or CFO), bring on a financial consultant. They have the experience and may have industry contacts you could use to help you out of the jam you are in. They know where to find the best help for your situation.
- Talk to your bank. See if you can get a larger line of credit, even if only temporarily. Or perhaps interest only payments for the next six months. Before you talk, be sure you have a plan in place. Bankers hate surprises and if you don’t have a plan to turn around your business, the bank will not be comfortable and may even call whatever financing they may have extended.
Now is not the time to be meek. You must act decisively and swiftly in order to turn the tide. Moral will not be the best, so communicating with your team on a frequent basis is imperative. Solicit their ideas and implement the best ones. If you can save your failing small business, these ten tips might be just the thing you need to help salvage it.
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