Access to funding is a one of the two biggest challenges entrepreneurs face. The other one, which often leads to the demise of a business, is cash flow issues.
Once you become aware of financial problems, independent financial adviser Petro Surman, advises that you evaluate your situation immediately.
Here’s your plan of action.
1. Identify the cause of your financial distress
“Before you can look at ways to resolve the situation, you need to understand the cause. Your plans of attack will likely need to address the root of the problem so that it becomes effective in the long run,” Surman says.
2. Prioritise your expenses
As a small business owner, you would know that there are some bills that can’t be put off and need to be settled ahead of others. Draw up a list of the expenses that are non-negotiables, like food and shelter, and rank them in order of importance.
From there, you will be able to assess the expenses you need to cut out of your budget entirely and those that you will need to scale back on.
3. Renegotiate a payment plan with your creditors
At the first hint of any financial instability, you need to contact all lenders and creditors to whom you owe money. Financial institutions are more flexible than you may think and they are always willing to find a solution to your cash flow problems, because, at the end of the day, it’s in their interest to ensure that you are keeping up with your credit commitments.
“People often wait until they are already severely delinquent before contacting their lenders and by then, they aren’t as willing to work with you. If you know that money is getting tight and you might need help, call them before you get behind,” advises Surman.
READ MORE: Strategies for cash flow management
4. Find extra money
If you don’t have a rainy day fund, you might need to consider cashing in on insurance policies and short-term investments to help you recover in the interim.
It’s not advisable to get a loan or use credit cards. While this would provide quick access to money, high interest rates and a new monthly payment will likely exasperate your financial predicament.
5. Be aggressive in the marketplace
“This may sound counter-intuitive, but a crisis offers the best opportunity to change the game in your favour with new products or services to gain business and strengthen your income,” says Surman.
Instead of viewing your financial crisis as a rough patch you’re going through until business returns to usual, “why not create the changes that move the crisis in your favour instead of waiting for things to get better, make it better with a new marketing approach?”
Source: SME South Africa