How to Save a Struggling Business: 5 Step Process

As a business owner, there are certain times you will experience trouble(s) in your business; the path to owning a successful business has its ups and downs. Your financial situation can become critical. Paying your bills becomes a challenge, or even worse, you may find it difficult to make payroll. This is an unpleasing position to be in.

Regardless, we have been able to help a lot of struggling business owners, and their businesses get back on track. Heading back into the light requires that you make tough decisions, and to save your business, you have to take decisive actions.

We are going to share our 5 steps on how to save a struggling business and also some examples that will teach you how to handle your most demanding needs. If you find yourself in any trouble, however, contacting an expert for assistance might be a nice idea.

There is no need to hesitate. Addressing the matter at hand on time will do you good as these situations usually cannot take care of themselves; there is a point it could get to if you delay that no solution can help you out.

1. Make sure your service or product has a positive contribution

Getting a positive variable contribution implies that the money you get for the product or service you offer exceeds the cost of delivering an incremental unit (for example, to make an extra widget or perform a service for an additional hour).

Make sure you do this for each product if you have different products. If you have a different price for your customers, you should analyse the customer level. In the event you discover a negative variable contribution, increase the price of that product or service, cut down the cost of offering the incremental unit, or bring an end to that product or service you are offering.

Although some rare exceptions probably exist, generally, you need to make sure that you earn to balance your overhead on every side.

We got to work with a manufacturing business experiencing financial problems (the company was losing money), despite the influx of customers the year before. After our investigation, we discovered many situations where jobs that could be handled by employees with less training and at a cheaper price were handed to higher level and expensive staff.

In most scenarios, the employee cost was higher than what the company charged per hour. It’s obvious that the company was losing money. We came up with some controls that correctly matched the demands of the clients with the appropriate priced staff.

Also, we offered a spread to the owner of this business. To summarise what we did, we advised the owner to charge the client a particular amount over the hourly employee rate. She stopped losing money when she applied this.

2. Prioritise who you pay and when

If the money you owe is above the cash you have available, prioritising what to pay becomes mandatory. And we advise you prioritise your payables in the following order:

The first to do is to pay any obligations capable of shutting down your business if you fail to pay them. For instance, if you cannot pay your employees, they may decide to leave and look for another employer capable of paying them. If you cannot deliver your product or service when this happens, you will not be able to run your business. Thus, paying your employees becomes a top priority. Another thing to consider is the vendors supplying you the materials you need.

Secondly, items that will lead to large penalties should be prioritised. For example, failure to pay taxes on time attracts paying huge fines. Make sure you avoid this if possible.

Thirdly, any late payment should be next in line. Lastly, payments that are not yet late should be prioritised last.

There is one caveat to this – if your business is insolvent you must not pay anyone in favour of somebody else.

3. Minimise or cut costs where possible

To remain in business, it’s very likely you will cut down costs. The first thing to do is get rid of every discretionary expense. You need to let go of activities like company holiday party or summer outing.

Next, consider non-people costs. Is it possible to reduce the money you pay for travel costs or utilities? The landlord might consider reducing rent, for a period at least, if the alternative is an empty space since you are insolvent.

Another unfortunate thing about cutting costs may involve laying off some of your employees, reducing their work hours or reducing compensation. Austerity measures are really difficult, but it is better to keep your business running with few employees than allowing all your employees lose their jobs when the company shuts down.

We have also worked with an IT Communications company that was losing money. With our assistance, the company was able to generate £10,000 a month in savings – they needed this amount to attain profitability.

However, saving this amount involved trimming staff, closing a part of the business that failed to generate profits, and asking the landlord for concessions. Touch decisions, but necessary in order to keep the company running.

4. Keep in touch with creditors

You may be tempted to ignore the situation and hide your face when you owe money, and you find it difficult to pay up. This is one of the biggest mistakes people often make. Contact your creditors, try to inform them about the situation as well as your plans to settle the money you owe.

Most people will still be interested in working with you if they believe you will settle what you owe in the end.

If you owe a bank money and you won’t be able to keep to your promise, either because you won’t be able to meet up with a payment or you won’t be able to meet some of the requirements (liquidity requirements, for instance, make sure you communicate with your banker about the situation on ground. Don’t forget, your banker is mainly interested in being repaid.

It’s likely the can will call your loan only if it assesses that the possibility of being repaid is very slim. If you approach your banker proactively with a good plan to turn your financial situation around and settle your load, they will be more likely to work with you.

We worked with a health clinic and communication was part of the steps we took to get the company back on track. The owners of the company, and the controller communicated with the vendors via phone as often as possible to ensure that their accounts remained active during this challenging period. Only some creditors turned them down. Most were still interested in the business relationship and continued to supply products. It’s evident that honest communication made this possible.

5. Carefully plan your cash flow

After prioritising what to pay, access your available cash and the receivables you are expecting to collect. Create a comprehensive cash flow plan afterwards that shows who you will pay, how much you will pay them, as well as the time to pay them.

We also worked with one construction firm weekly as they worked their way out of problems that had to do with cash flow. We had to work with their controller to create an ideal cash-flow plan. We examined the amount of cash to expect every week for the upcoming months. We calculated what money was left after sequestering payroll.

We meet with the management team every Wednesday to determine whom we were going to pay and how much we could pay them. This was not an easy task, but this kept the business from sinking, and today, their cash flow is perfectly okay.

Next Steps

If your business is struggling, the tips mentioned in this post will help you handle your priorities effectively.

However, you must take relevant action as soon as possible; no need to delay. Act quickly so you can get your business on the right path to success.

If you have any cause for concern call us on 0800 975 0380 or email us on [email protected]

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