Due to the economic situation that the country is going through, due to solvency problems, or even some unexpected event that destabilizes the company, there is a risk of becoming bankrupt. Those companies that are less than five years old are especially at risk since it is likely that they are still recovering from the initial investment. The probabilities of closure increase in times of crisis, so you must prepare to face the circumstances that may arise.
In this article, you will find ten actions that can save your business from bankruptcy, the most common mistakes why companies close, and what you can do if you are in a similar situation.
Most small and medium-sized businesses have an emergency fund that they use when business is not going well. However, it will be of little use if you use it for daily expenses without knowing the main problem. Before the first change in your business accounts, the first thing to do is an internal and external analysis that helps you identify the causes of why sales are decreasing or why expenses are increasing, and with it, create an action plan that addresses the problem.
Actions That Can Help You Save Your Business
Identify Money Leaks
It could be for several reasons, like inappropriate diversion of funds, increase in prices of suppliers or raw materials, bank charges, increase in the price of supplies, ant expenses, or any other method of money leakage. Knowing your numbers does not mean having balanced bank accounts. It is about knowing the inventory you have, the production costs of your product, salaries, and wages.
Many businesses do not keep detailed control of their resources, sales income, and expenses in general. If you do not record in detail everything that happens in your company, it is difficult to make intelligent decisions when it comes to reinvesting, distributing profits, carrying out growth plans, and you may even be in real financial trouble and not know it.
Cut Unnecessary Expenses
In the long term, many seemingly harmless expenses can turn out to be more harmful than others that would seem larger at first. It is of utmost importance that within the first actions you reduce unnecessary expenses. Failure to do so may result in a lack of resources necessary to continue operations, so cut any expenses that do not generate profits, including meals, advertising, office rent, and even cell phone rates.
Diversify Your Business
In a constantly changing market, business diversification has become a key strategy to maintain competitiveness and long-term growth. By expanding product or service offerings, companies can break new ground, reduce risks, and strengthen their company’s position in the market. To do so, it is not necessary to integrate large products or services that generate high introduction costs. You can offer complementary products through strategic alliances. Diversify your income and discover that, with the same time and resources, you can make more money.
Emergency Sales
No matter the reason for the business imbalance, developing an aggressive, multi-channel sales strategy can save your business for a few months, while you stabilize your situation. ‘For a limited time’, ‘Today only’, ‘While supplies last’, and ‘Valid before…’ are some of the most used phrases to motivate the purchase of a product. It is a strategy that appeals to the consumer who must take advantage of a certain moment to acquire a good or service.
Evaluate Your Prices
The actions of a business on the verge of bankruptcy must be a combination of more sales and fewer costs. One of the main actions to increase sales is to reduce costs to be more competitive in prices. That will keep your customers loyal to the brand and attract new ones.
Prepare a Collection Plan
There are many cases in which companies go bankrupt because their clients do not pay them or delay payments for a very long time. The main problem is a poor collection system, where the timing between payments to suppliers and collections from clients is not aligned. Improve this process and use client payments wisely to finance your business operations.
Innovate
Crises are an excellent time to test your ingenuity. Some say they sharpen creativity, so do not be afraid to do new things. Business innovation consists of creating new products or services that respond to a need, improving existing ones, or proposing any change in the existing business model so that it better fits the needs of consumers or provides greater profits.
Consult with Your Collaborators
They are the ones who know each part of the company and may have an innovative idea or know the origin of the problem. Organize a meeting with crucial questions that will help them understand your point of view and the benefits of their collaboration. Also, remember that you can always receive the help of a professional if your company is at risk. Consulting a Layton Law bankruptcy attorney will help you understand the legal details that concern you so much.
Adapt Your Business to the New Reality
When the market changes or faces a crisis, it is necessary to know what the tendencies of your buyers are, so carry out a new market study and set new objectives. For example, the COVID-19 crisis caused many businesses to close their doors. But it also helped others grow exponentially by migrating to a digital environment.
Seek Financing
Once you have detected the problem and know how to attack it instead of using your emergency fund, you can apply for SME loans, aid, subsidies, or other resources. This way, your company will not run out of money in an emergency. Remember that the injection of capital is necessary so that your business can grow, and this can come from a third-party investor who is attracted to your business.
Conclusion
Having a company and operating it without issues is not an easy task. There are many things you can do to avoid bankruptcy, such as seeking financing or cutting expenses. And if bankruptcy seems imminent, you can always seek the help of a professional to make the process as painless as possible.