Setting the grounds for a new business is never easy, especially in the current market, where businesses rise and fall in the blink of an eye. Statistics show that the main reason businesses fail is not enough cash flow. New businesses either start with insufficient funds or lose their capital due to poor decisions.
Unfortunately, these statistics influence entrepreneurs to take a step back when encountering financial struggle, often deciding to close their gates instead of trying to find solutions for said issues.
Struggling to maintain their motivation when things don’t go too easy is the number one challenge business owners face. But in order to understand how to manage this sort of situation, you will first have to analyze what caused the issue and start working towards a plan to get back on your feet.
Why Businesses Fail
While cash flow is usually the number one issue most businesses fail, there are also other struggles that cause entrepreneurs to put the lock on the doors.
Taking a closer look at the roots of the issues may give you a better understanding of how to salvage your struggling business:
- Not enough research regarding the market, ideal customers and customer habits will often lead to failure, especially for small businesses. Research should be conducted both prior to opening the business and periodically to help identify potential issues.
- Not setting the correct price will have a big impact on sales. If the pricing is too low, the business will not have enough money to cover expenses and if it’s too high, there are chances the product won’t sell.
- Not adapting to market changes is another common struggle for new businesses. In order to keep up with the competition, businesses need to anticipate and react to the ever-evolving market and competition.
- Fast growing is often a good sign, but it can become overwhelming and get out of control if the business is evolving too rapid. Slow and steady growth is the way to success.
If you find yourself in a difficult situation regarding your business, there are a few things you can do before giving up on your years of work.
Analyzing and Building Up a Strategy
When you find yourself in trouble, concentrating on the half-empty part of the glass is not going to get you anywhere. It may seem that there is no other solution besides failure, but this negative mindset will not help you solve your issue. Changing your mindset and focusing on finding solutions, rather than concentrating on what went wrong will get you a long way.
Ignoring the issues is not a solution either. Acknowledge you are struggling, accept the situation you are in and concentrate on keeping a positive approach. It’s easy for your mind to concentrate on the negative, but it’s up to you to shift the focus towards problem-solving.
The best way to identify what went wrong in the process is performing a SWOT analysis. SWOT stands from strengths, weaknesses, opportunities and threats and it will help you analyze the current position of your business on the market, discover issues and understand where you can make improvements. SWOT analyses should be conducted frequently, to prevent issues that might get out of control.
After identifying the main issues, it’s time to draw up a plan to overcome them. In most situations, if you act on time, there is a high chance you will get past the struggles. But while some issues can be fixed from the inside, sometimes you will have to seek expert advice.
Setting the Plan in Motion
Taking out a business loan may seem like a good option to overcome the struggles you are facing, but act with precaution and make sure you will be able to pay your creditors in time. Loaning money to get out of a financial situation is typically not recommended as it can backfire.
If you are positive your issue is temporary and a loan will result in a positive return on the investment, then you can consider the option of a loan, but make sure you do the math. There are various types of business loans that you can apply to, depending on your situation.
Building a detailed cash flow plan will help you prioritize your payments. For example, set a day every week when you can sit down, look at what cash you might be expecting that week and what expenses are mandatory.
It can be quite an overwhelming process for a few months, but sticking to it will keep your business running and slowly get back on its feet.
Be open about the situation with your creditors and let them know you are facing some difficulties. Because you are their customer, they have an interest in seeing you survive and chances are, they will be willing to work with you.
If you find yourself owing more than you can pay, prioritizing is the best solution. Start by paying employees and supplies first, as they are paramount to keep your business running.
Next, focus on invoices that can result in penalties, like taxes and utility bills. Leave other costs for last and pay them in the order of their due date.
To avoid closing your business down, you will most likely have to cut down on expenses for a while. Take a look at all the expenses and find areas where you can apply this, without affecting your production.
Reduce utility usage to lower your bills, cut down travel expenses or try to renegotiate the lease on your office space.
If you find yourself in the position where you have to cut down employee payments, try to have a talk with your team and discuss minimizing employee hours or a temporary salary reduction. Chances are, they will understand the situation.
Make sure you don’t make promises you can’t keep, be straight forward with your employees and take responsibility, like any great leader would do.