Saving a struggling small business can be a challenging task, but with the right approach, it is possible to turn things around. One of the first steps in saving a small business is to identify the root cause of the problem.
This could be anything from poor management to lack of customer demand. Once the problem has been identified, it is important to develop a plan to address it. This may involve cutting costs, increasing revenue, or finding new customers.
Another important step in saving a small business is to seek out the help of experts. This could include a business coach, a financial advisor, or a marketing expert.
These professionals can provide valuable insights and guidance on how to improve the business. Additionally, it is important to stay informed about the latest trends and developments in the industry.
This will help the business to stay competitive and adapt to changes in the market. Overall, saving a struggling small business requires a combination of hard work, strategic thinking, and expert support
Why is my business failing?
There are many reasons why a business may be failing, including:
- Lack of demand for the product or service: If there is not enough interest in what the business is offering, it can be difficult to generate enough sales to stay afloat.
- Poor marketing: If the business is not effectively reaching its target market or differentiating itself from competitors, it may struggle to attract customers.
- High overhead costs: If the business has high overhead costs, such as high rent or employee salaries, it can be difficult to turn a profit.
- Poor management: If the business is not being effectively managed, it can lead to financial losses and a lack of direction.
- Lack of innovation: If the business is not keeping up with industry trends or failing to innovate, it can fall behind competitors and struggle to attract customers.
- Economic downturns: A recession or other economic downturn can make it difficult for businesses to survive even if they are otherwise healthy.
It’s important to identify the specific reasons why your business is failing so that you can take the appropriate steps to address the issues and turn things around
What steps can I take to save my failing business?
(1) Identify the cause of your decline
The first step in turning around a struggling business is to identify the root cause of the problem. However, this can often be a difficult task for business owners who are too close to the situation to look at it objectively. This is where the help of a qualified and experienced third-party, such as a turnaround practitioner, can be invaluable. They can provide an objective perspective and assist in identifying the true cause of the trouble.
One effective approach is to pinpoint a time when your profits were high and sales were strong. What changes occurred inside and outside of the business at that time? It could be that a new competitor entered the market, or perhaps you reduced your marketing spend, or diversified into new markets. Once you have a better understanding of the reasons for the business’s struggles, you can then focus on addressing the issues head-on.
(2) Make sure you understand your target market and your ideal customer
When a business is facing difficulties, it is crucial to focus on the fundamentals. Two critical questions to ask yourself are: ‘how well do you understand your target market’ and ‘what do your customers desire?’ Having a clear understanding of your target market and ideal customer will help you to prioritize your efforts and resources effectively.
As a business matures and becomes more established, it’s easy to lose touch with the customers who helped it to achieve initial success. Instead of catering to customer needs, you may start to create products and services that you want to offer.
If you are experiencing negative feedback from customers and a decline in sales, it’s time to reach out to your customers to understand their needs and wants. By aligning your product offerings and marketing strategy with their desires, you can develop a plan that ensures their needs are met.
(3) Manage your cashflow more effectively
Managing the cash flow in your business is an ongoing task that requires daily attention. Whether it’s you, as the business owner, or a member of your team, it is important to have someone responsible for sending out invoices, creating payment reminders, chasing late payments, running credit checks on prospective clients, and taking action against non-payers. This will help to improve the flow of cash coming into your business.
Long payment terms or slow payers can be a major drain on a company’s cash flow. In some industries, it is not uncommon to have payment terms of 60, 90, or even 120 days. During that time, outgoing payments still have to be made, which can put a strain on the business. Creating a cash flow forecast will give you insight into what is coming in, what is going out and when, providing you with a snapshot of the company’s cash flow and enabling you to take steps to boost it or reduce costs before a shortfall occurs.
If you’re facing a cash flow crisis or anticipate a shortfall, there are steps you can take to resolve it. Invoice financing, a short-term form of funding that releases the cash tied up in unpaid invoices, is an option that more and more businesses are choosing.
(4) Talk to your creditors
When facing difficulty making payments to creditors such as suppliers, finance providers, landlords, and government agencies, it may be tempting to ignore the situation and hope it will resolve on its own. However, this approach will not work. Many business owners view their inability to make payments as a failure and feel overwhelmed by the situation, leading them to avoid contact with creditors which only exacerbates the problem.
The best course of action when struggling to make payments is to communicate with your creditors, explain the situation, and discuss plans for repaying debts. Establishing a positive relationship with creditors and having a history of making payments in the past can increase the chances of understanding. Even powerful creditors like HM Revenue & Customs can provide Time to Pay arrangements that allow for repayment of taxes in instalments over a period of up to 12 months.
Your creditors are likely to receive more of their money if your business continues to operate than if it collapses. As a result, they may be more willing to provide leniency than you expect.
(5) Reduce your overheads
When a business is struggling, cutting costs if you can’t afford to pay your business overheads and eliminating unnecessary expenses is crucial for survival. Regardless of the size of the business, there are always ways to cut costs.
A few steps you can take to reduce expenses include:
- Implementing a system where all purchases require approval from you and partners before proceeding.
- Avoiding drawing petty cash from the bank unless it’s essential.
- Reviewing all expense claims made by staff personally and rejecting unnecessary ones.
- Negotiating with suppliers to see if better prices can be obtained.
- Considering a rent reduction, or moving to monthly payments instead of quarterly to ease cash flow pressure.
- Evaluating whether company cars are necessary for you or your employees.
- Selling non-essential assets to raise cash.
- Cutting all overtime costs, and instead hiring temporary workers at lower rates when additional man-hours are needed.
- Keeping records of all decisions made, whether it’s minutes if operating a limited company or notes if a partnership or sole trader
(6) Consider alternative sources of finance
Borrowing more money when you’re struggling to make payments might sound like a recipe for disaster, but if the underlying business model is viable and you simply lack capital, funding could provide the cash injection you need.
There are now many more finance options available than just business credit cards, overdrafts and bank loans. These days, invoice finance, asset-based lending and merchant cash advances have all become popular methods of business funding. The advantage is that many of these alternative funding types can be accessed quickly and are available to businesses with less than perfect credit records.
(7) Explore your company rescue options
If you are committed to saving your business and believe it is viable, there are various formal insolvency options that may be appropriate. Our turnaround practitioners can help you evaluate your options and explain the process and potential outcomes of each procedure.
One option is a Company Voluntary Arrangement (CVA). If you are facing pressure from creditors and the threat or reality of legal action, a CVA may provide valuable breathing space. It is a legally binding agreement between a limited company and its creditors to repay some or all of the debt in instalments over a period of one to five years.
The first step is to create a repayment proposal that creditors will vote on. If at least 75 percent of creditors (by value of debt) agree to the terms, the CVA can be put into place.
Another option for directors and owners of limited companies unable to pay their debts is to put the business into administration. An insolvency practitioner will manage the process with the goal of rescuing it by restructuring its financial affairs. The period of administration can last up to 12 months, during which the administrator will explore all options to keep the business afloat and legal action from creditors will be halted.
Professional assistance to save your struggling business
Seeking professional assistance can be a crucial step in saving a struggling business. Turnaround practitioners, business consultants, and financial advisors are experts in identifying the root causes of financial difficulties and developing strategies to turn things around. They can provide an objective perspective and offer valuable insights that an owner or manager may not be able to see due to their close involvement with the business.
These professionals can assist with budgeting, cost-cutting, cash flow management, and identifying new revenue streams. They can also help to negotiate with creditors and lenders, and may be able to assist in accessing alternative forms of financing. Ultimately, professional assistance can provide the support and guidance needed to navigate the challenges of a struggling business and increase the chances of a successful recovery.
Conclusion
Saving a struggling small business requires a combination of quick action and strategic planning. One of the first steps is to assess the current financial situation of the business, including identifying areas where costs can be reduced and revenue can be increased. This might include cutting back on unnecessary expenses, increasing prices, or finding new revenue streams. Additionally, it is important to review your customer base and identify ways to attract new customers and retain existing ones. This might include implementing marketing and advertising campaigns, improving customer service, or offering special promotions.
Another important step in saving a struggling small business is to review your operations and identify any inefficiencies or bottlenecks that are causing delays or lost revenue. This might include streamlining processes, investing in new technology, or outsourcing certain tasks. Additionally, it is important to review your products or services and make sure they are still relevant and in demand. If necessary, consider diversifying your product or service offerings to appeal to a wider range of customers.
Finally, it’s important to seek help from experts like financial advisors, insolvency consultants, or industry experts. They can provide valuable insights and guidance on how to navigate the challenges and turn the business around.
With over three decades of experience in the business and turnaround sector, Steve Jones is one of the founders of Business Insolvency Helpline. With specialist knowledge of Insolvency, Liquidations, Administration, Pre-packs, CVA, MVL, Restructuring Advice and Company investment.