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Top Tips For Businesses Facing Financial Difficulty

If you’re first setting out in business, it’s easy to believe that making money is simple. You have a product, you sell your product, and the money comes into the business. Rinse and repeat.

However, it’s not always that simple, and your business could end up facing financial difficulty.

In an uncertain and tumultuous economy, where individuals and businesses alike are tightening their belts, you might find that your sales are not as free-flowing as they once were. On the other hand, you still have bills to pay and creditors to keep happy.

So, what can you realistically do as a business owner if you’re facing financial difficulties?

Tip 1 - Keep lines of communication open

It’s easy to stick your head in the sand and believe that it’ll all blow over. But if your creditors are not aware of your financial situation, they will not know why your debts are not being paid on time or in full.

Keep communicating with them.

Most businesses understand what you’re going through and are willing to work with you, as long as it means they get paid.

Explain to them the situation you’re in and what you’re trying to do to resolve it. If you can’t pay your debt in full, negotiate with them and see if you can set out a payment plan.

If they’re open to accepting your payment plan, stick to it and ensure you make all payments on time and in full. If you break their trust, they may bring formal action against you.

Tip 2 - Chase your debtors

How can your business pay its debts if no one is paying your business?

In an ideal world, your business issues an invoice, and your client promptly makes full payment. However, that’s not how business works in the real world.

Your client may have their own debtors who are not paying them; so they might leave payment until the last possible moment before the due date on the invoice, or they might even ghost you completely and leave you wondering whether you’ll ever receive payment.

Which means that as much as no one likes hounding others to pay them, sometimes it can be necessary. If your client responds, it could shed light on why they’re not paying their invoice. This can give you an opportunity to work out a payment plan with them, allowing you to slowly regain the money (which is better than not seeing any of the money at all). However, if your client has completely ghosted you, you might have to navigate the legal route and take them to court before you see any of the money owed. This isn’t a step to be taken lightly, and you should seek full legal advice before taking this route.

Tip 3 - Improve cash flow as much as possible

This seems like a no-brainer: if you’re in financial difficulty, improve your cash flow. However, it’s not always that simple, so let’s look at the small steps you can take to get on top of it.

Start by cutting all unnecessary expenses. While you might think that all of your expenses are necessary, there’s still probably an overlooked subscription you no longer use, so ensure you’ve managed to cut as much of your spending as you can without damaging your business.

Once you’ve cut all the unnecessary expenses, take a look at how you bring in additional income. Is there a way you can increase sales using the resources you already have? Or can you use Tip 2 and start chasing your debtors to make payment to you? Neither of these is a step you want to take in your business; however, they become necessary. For more information about cash flow, including how to improve your cash flow, take a look at our previous post: Accounting Basics - Understanding Your Cash Flow.

Tip 4 - Stick to your plan

It’s not always easy, and there are times when you’ll think you’re coming out of the woods, but until you’re fully out, try and stick to your plan as much as you can.

During times of financial difficulty, when you’ve managed to cut back on your spending and also brought in new customers, money might seem as though it’s becoming free-flowing again.

However, if you fall back into your previous spending patterns, you might find that you fall back into financial difficulties again.

To avoid this, try to stick to your plan until you are fully out of your difficulties. However, remember that you are running a business and that expenses can be necessary to keep your business running smoothly; it’s the unnecessary expenses that are the problem.

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