Even the most competently-run businesses occasionally find themselves facing a small financial crisis. On a large enough scale, a financial crisis has the power to ruin your business—you could rack up debt so severe or lose such a big swath of your customer base that you’re forced to close the doors.
But today, we’re looking at smaller, more manageable crises; these are situations like experiencing a cash shortfall, seeing a major drop in revenue, or seeing a temporary slowdown in operating efficiency.
If not properly controlled, a small crisis can quickly escalate into a large one. So what can a business owner do to get through one of those small-time crises?
The first step is to remain calm. Millions of businesses before yours have come up against bigger challenges, and still pulled through to become major successes. You’ll need to think through your options rationally and concentrate your efforts if you want to be successful.
That said, there are many options available to you, including:
- Get a business loan. If you’re facing a shortfall of just a few hundred to a few thousand dollars, consider getting a business loan. There’s a wide variety of loan types to choose from, and if you shop for a business loan online, you should be able to find a competitive rate from a reliable provider.
- Tap an existing line of credit (or tap a new one). If you have a business line of credit already, even if it’s a credit card, consider tapping into it. If it’s already maxed out, or if you don’t have a line of credit yet, consider opening a new available line of credit. Young businesses may struggle to get a line of credit established, but if you have a long history of generating revenue, it shouldn’t be a problem.
- Seek new funding. If you’re facing a bigger shortfall, you may need to go back to the drawing board, and seek a new round of business funding. Depending on the nature of your business and its history, that may include talking to some of your existing investors, reaching out to venture capitalists, or even starting your own crowdfunding campaign.
- Offer a sale, discount, or special promotion. If your business is in solid shape other than the cash shortfall, you could generate some extra revenue by encouraging more customers to buy. Launching a new sale, discount, or special promotion could get you enough new revenue to get by.
- Push for accounts receivable. If you have multiple outstanding invoices, now’s the time to push your accounting team to get serious about them. Sometimes, a sternly-worded email and/or a conversation over the phone are all it takes to get a late customer to pay up. And depending on the severity of your shortfall, a handful of newly paid invoices could be enough to keep you going.
- Cut non-essential staff. Though it’s nobody’s first choice, if your shortfall is severe and likely to last more than a month or two, you may need to make staffing cuts. Start with the roles least likely to impact your business outcomes, and always strive to make cuts based on seniority.
Preventing the Next Crisis
Once you’ve been able to resolve this short-term financial crisis, your efforts should be spent reinforcing your current enterprise so you can prevent—or at least mitigate—the next crisis:
- Examine your cash flow management. First, take a look at your cash flow management strategy. How closely were you following up with unpaid invoices? How quickly were you paying your own invoices? Did you have someone keeping an eye on the financial health of your business at all times? Now’s the chance to correct any issues that could lead to another problem.
- Establish a strong line of credit. Next, work actively to establish a reliable line of credit you can draw upon in the event of another crisis. It’s usually easier to set one up when you’re financially healthy than when you’re in desperate need.
- Trim your budget. While you’re at it, trim your budget. Look at where your business is spending money unnecessarily, and scale back spending that isn’t earning you better overall results.
- Look at your insurance policies. You may also want to look at your business insurance policies. A simple business interruption insurance policy could protect you against a machine failure or other sudden inability to produce.
Don’t consider it a failure when you encounter your first financial crisis; in fact, most businesses will eventually go through one. But you need to treat it as a learning experience and as a test of your abilities as a business leader, or you won’t be able to prevent or survive the next one.