5 practical tips for small businesses in financial distress

In these trying times, economic difficulties seem too overwhelming for businesses. As consumers tighten their wallets and jobs become harder to find, a company’s ability to stay afloat can be threatened. Although there is no solution that guarantees success in the midst of this crisis, it is now more important than ever – with resilience and creativity – for companies to fight back against financial problems! If you are the owner of a small business going through a rough patch, you may feel that all hope is lost and that it is better to end it before filing for bankruptcy. But before you waive the white flag altogether, read these 5 practical tips for small businesses in financial distress.

reassess costs

If your margins are shrinking, you should start analyzing your company’s costs and then reduce them wherever possible.

How much do you pay for the work?

What stock just sits on the shelf collecting dust?

Do you spend a small fortune on office supplies?

Lots of subscriptions to services you don’t use?

Too much money for advertising that doesn’t bring you any ROI?

Take a look at all your expenses, review your business budget and tighten your belt. What I’ve learned in the past is that no purchase is too small or insignificant. You’ll be surprised how much you can save by simply switching from fountain pen to generic ballpoint pens!

Check your suppliers

When evaluating your spend, it’s important to evaluate your business-to-business (B2B) transactions for two reasons.

First, if you have a long-standing relationship with your provider, there’s a good chance they’ll be willing to work with you during this economic downturn by offering an installment arrangement where you pay them back over time.

Second, the prices you agreed years ago may be outdated and you can find much cheaper products from another supplier who can beat the price. It pays to make lots of small savings – they really add up and can make a big difference.

liquidate inventories

Remember that thing about those overstocked items sitting on the shelves? What other valuables do you have lying around? Perhaps there is a surplus of equipment and machinery that you no longer need as production has decreased.

Or maybe you’ve moved to a remote environment in the face of the 2020 pandemic and no longer need office furniture or a fleet of company cars.

From your stocks to your assets, these items have value that you could liquidate to keep the company afloat.

When business is looking bad, add up these points and use them to calculate the quick ratio:

Quick Ratio = (Current Assets – Current Inventory) / Current Liabilities

This formula is used to evaluate how quickly you can repay your outstanding debt should sellers and lenders come knocking on your door.

Ideally, the ratio should be 1:1, meaning that for every $1 in debt, you have $1 to cover costs.

Check that your numbers are looking good, and if they’re not, it might be time to start liquidating to prevent getting into further debt.

Research utilities

In response to the pandemic wiping out the economy, the government introduced financial aid programs for struggling businesses. If you live in the US, you may be able to secure federal funding through the Paycheck Protection Program (PPP), which is part of the CARES Act that Congress signed into legislation.

Also, you may be able to find tax breaks from the Internal Revenue Service (IRS). Seek help from one of the accounting organizations the UK has to offer or an accounting helpline such as the ICPA’s free tax helpline for businesses. “A problem solved by a call to our helpline in a month could save the caller the membership fee alone.

For example, if you received a trust fund recovery penalty for not paying income taxes that year, the IRS may be willing to offset or waive the penalty. At the very least, they can work with you to create a repayment agreement that will ease the financial hardship.

Seek help from lenders

If you don’t qualify for government funding, applying for a small business loan from a bank or credit institution can potentially give you the breathing space you need to get back on your feet and continue with business as usual. Be sure to read the fine print and, if possible, borrow from a family or friend before committing to a high-interest loan.

Wrap up

In business and in life, it’s always better to be proactive than reactive. Once you’ve overcome these obstacles, do your best to start an emergency savings account so you know there’s a safety net in place when rough seas loom on the horizon.

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