Knowing What to Do When Your Small Business Faces Hard Times
No matter how well you might manage your business, there are a whole host of factors that can result in slumps in profits and consequent financial difficulty. If you’re going to get past these periods, you need to be prepared for them. Knowing what to do in times of financial turmoil can help you to deal with your given situation much more professionally and effectively. So, here are a few sage pieces of advice for any business person who is facing hard times.
Preparing for the Worst
While you should always remain positive in business, you also need to be a realist and prepared for the worst. This allows you to be prepared to call the right shots should things go irrecoverably wrong. Now, if your business is to go completely down and out and cannot pay its dues, you’re going to have to consider liquidation. But What is company liquidation? Well, liquidation is the official act of bringing a business to an end. Once you have liquidised a company it no longer exists and you cannot practice under its name or any similar name again. If this happens, you’ll have to work alongside an official and licensed insolvency practitioner, as you cannot liquidate your own company by yourself. This individual will be able to help you to fairly distribute any remaining assets that your business has remaining. There’s a certain order to this that you have to stick to legally. First, you should prioritise secured creditors. Generally speaking, they will take any collateral that you have used on loans, then sell it off to make back any money that you owe them. If the amount that they make isn’t sufficient (which it rarely is, as assets are usually sold off cheap to make quick profits), you will have to make up any difference by selling any other assets that you may have left. Chances are that by this point your business won’t have much left (after all – you’re liquidating for a reason and that will generally be lack of profit) – however, next in line will be any owed taxes to the government, shareholders, and employees who haven’t yet been paid for their work.
Improving Your Credit Score
Now that we’ve got the worst out of the way, let’s focus on building your finances back up. This information can be applied to businesses that are only just starting to experience difficulty, or for individuals who have liquidised one business and intend to start another up. First, you’re going to have to look at improving your credit score. Chances are that you will come out of hard times with significant debt. So, it’s time to start boosting that credit score back up. The first thing to bear in mind when you’re running a small business is that your credit score is crucial. Now, credit scores are important for your average person anyway. It’s what lenders use to determine whether they will give you any form of credit or not, so can determine whether you’ll be offered finance deals, credit cards, or even things like mortgages. But when you own a small business, you may find yourself needing to lend cash on a more regular basis than your average individual. Why? Because you have more investments to make. You might need cash upfront for product development or a product launch. You might need to take out a market research campaign or an advertising campaign in order to get your products and services up off the floor. You’re going to be looking to invest at all times in order to make a profit and significant return! So, having a positive credit score becomes even more important! While it may sound like the last thing you want to do, you should start taking out small scale loans. It sounds illogical, but you have to engage with credit to improve your credit. By taking out small loans and paying them back on time, lenders will begin to rebuild their trust in you. You will show that you are now trustworthy with your finances. Slowly but surely, your credit score will boost and you’ll find yourself with a much more desirable financial status.
Planning a Sensible Future
Once you’re back in the black, you’re going to want to continue in the right direction. This means making more sensible decisions in the future. You can start out by budgeting. The reason that most people are in debt in the first place is irresponsible or unwise spending or making bad business decisions. At some point or another, it is likely that you have exceeded your budget, or simply haven’t had one to start with. So, it’s time to get into good habits by creating a realistic budget and sticking to it. This is simple enough. All you need is a notepad, pen and perhaps a calculator. Sit down and note down what money you have to spend on your new business. This can be on a monthly or yearly basis. Now, total up the overall cost of your necessary expenses (this can include bills and other essential set up costs). The amount that is left is your disposable income. No matter how tempting a professional offer may be, make sure that you never exceed your disposable income. You can never guarantee that any business move or plan will pay off, so you want to make sure that any money potentially lost is money that you can afford to lose.
Of course, your course of action will depend entirely on your particular circumstances, but the above advice can be applied to almost any situation where a business is experiencing trouble. So remember to keep this information in mind at all times. You never know when difficulties might strike, so it’s best to be prepared!
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