Financial preparedness is a critical aspect of business management. Since the risk of a financial crisis is never zero despite ample preparation, you never know when your business will run into one. But even though you have prepared for such an event, your emergency fund may not be enough to cover the damage.
So, what do you do when you’ve already exhausted your emergency funds? To avoid debt from snowballing and to keep your business afloat, here are several ways to overcome a business financial crisis:
1. Stabilize your cash flow
One of the first things that you have to do when faced with a financial slump is to stabilize your cash flow. There are several ways you can do this, and the best strategies will depend on your specific situation. If you are already struggling to pay the bills or expect to struggle soon enough, start finding sources of cash as soon as possible so that you can at least keep the business running.
The easiest and fastest way to feed cash into your business is by obtaining a short-term loan from a reputable lender. While you may be adding to your debt, a loan can help keep things stable while you figure out your next move.
If getting a loan is not an option, try selling some assets or tapping into your home equity (although this may be considered as a last resort). If you scored some of the best mortgage rates, you may be able to acquire enough cash from your home equity to cover your business’s expenses for quite some time.
2. Prioritize payments
One big problem during a financial crisis is not being able to pay all of your bills. When this happens, it’s time to start prioritizing the most important payments (a.k.a. the payments that you have to make no matter what), such as utilities, wages, raw materials, essential supplies, etc. At the same time, eliminate unnecessary expenses that are eating into your cash flow or reducing the non-essential ones. In this way, you have more money to pay the essential expenses and don’t have to risk halting operations because you missed the deadlines.
Furthermore, delay the less important payments as much as you can. This could mean postponing non-major repairs, canceling non-essential business trips, and requesting extensions or alternative payment plants from your landlord and suppliers.
3. Ask for help
Hiring an accountant or business financial consultant may be an extra expense on top of your already mounting bills, but an expert on the matter can help you figure out what to do next. Doing this is especially important if you’ve gone through your books dozens of times and still can’t figure out what’s causing your slump; after all, not every business owner is skilled in accounting or bookkeeping.
It’s also a good idea to reach out to your network. There may be other business owners or entrepreneurs out there that have some valuable pieces of advice that can help you overcome this crisis.
4. Boost revenue
Boosting revenue is the best way to improve your cash flow and help your business out of its financial crisis. Start by checking your accounts receivable and then collecting any outstanding payments from your clients. Once you’ve collected all that you can, boost your revenue stream by re-thinking your marketing strategy and applying new ones that can reel in cash. At this point, profit margins don’t matter that much. The most important thing is that you rake in enough revenue to keep the business afloat.
That said, sit down with your marketing and sales teams and brainstorm ways on how to boost revenue quickly and efficiently in the next few months.
5. Use your personal funds
We’ve mentioned before that using your home equity can be an effective way to improve your cash flow during a financial crisis. But what if you haven’t built enough equity on your home to take out a line of credit? Your next best option is to use your personal funds. Emergency funds, savings, and personal assets can help your business remain operational until you can regain your footing. However, recognize the inherent risks of using your personal funds before feeding them into your business. Better yet, treat this option as a last resort as it can put you in a deeper hole in case things don’t work out.
When your business encounters a financial rut, there are still a lot of ways you can keep things afloat until things become more stable again. If you happen to encounter a crisis in your own business, use these strategies to keep your business in operation.