Most small businesses deal with financial troubles at one point or another, whether when you are just starting out and learning the ropes, or have been well-established, and are feeling the effects of a bad economy. How you handle these problems can mean the difference between overcoming and thriving, and losing your dream. Here are some tips to help you deal with hard financial times.
Consider New Purchases Very Carefully
When times are tough, good cash flow is more important than ever. If you are considering purchases that would require you to take on additional debt, tread very carefully. Yes, you have to spend money to make money, but it is not always necessary to make a certain purchase right away; there may be a better time. Will this new purchase bring in enough cash to pay for itself in a reasonable amount of time? If the answer is no, put it on the backburner.
Go Through Your Budget with a Fine Tooth Comb
With the exception of the most diligent of business owners, most people are not monitoring their financial situation as closely as they should. They have not really given serious thought as to whether they could be getting certain things for less money, if a purchase is absolutely necessary
Look at Debt Structure
Take a look at how your various debts are structured, and see if there are any adjustments you could make to improve your cash flow and pay down certain debts more quickly. Perhaps you can spread shorter-term debts over the long-term to get more cash in hand. Maybe you can stretch out long-term debts a bit farther to free up more cash to pay down shorter debt obligations. Before you being borrowing against long-term equity, make sure you have fully considered other options.
Be Careful with Credit Cards
Credit cards can be great in emergencies, and you may think your current situation qualifies as one, but proceed carefully. Not only do credit cards carry very high interest rates, should your business fail, you will still be responsible for paying the balances, regardless of how your business is structured—credit cards are considered personal obligations. If you feel credit cards are your only option to get the money you need, this can be a serious indication that your situation is much more serious than you realize it to be.
You may want to look into small business loans, but at this point, it may be difficult to get one. If you do go this route, do not intentionally misrepresent your finances—this is obtaining a loan through fraud and can land you in plenty of trouble. If you want to improve your cash flow, you might consider invoice factoring if you extend credit to customers. If you land a big purchase order you cannot fill, a PO funding company may be able to help, provided certain conditions are met, such as a minimum gross profit and a strong credit history on the part of your customer. Beware of merchant cash advances, which involve a company fronting you money and then taking a portion of daily sales through a deal arranged with your credit card processor. The fees are notoriously high and are not the ideal option if you are relying on this service just to pay bills.