Is Your Business Facing a Financial Disaster? Here’s How to Resolve It
Posted: Aug 01, 2020
Many small and medium businesses are one financial disaster away from complete failure. Such disasters can be due to poor cash flow management and other such internal factors. It can also be caused by external forces such as a pandemic, an economic slowdown, and natural calamities. It's always a good idea to seek the help of a financial management consultancy firm to get back control and avoid closure. A consultant can review your finances from an objective perspective, identify problem areas, and provide practical solutions (such as invoice discounting) to resolve the issue—or at least lessen its blow.
You can also start doing some housekeeping to alleviate the impact of a financial disaster on your business. Here are some tips:
1. Identify what's causing the crisis
Financial issues are just symptoms of a bigger problem. Identifying the root of the problem is the first step to solving it.
If the disaster is being caused by factors that are beyond your control, such as a calamity, look into what the government has prepared for SMEs and take advantage of those solutions. But if your company is suffering financially because of internal factors, it's time to analyse your financial management. Are your clients always paying late? Are you mixing your personal and business finances? How are you using your business profits? Are you paying too much on rent? Answering such questions can help you get a better grip on your company's cash flow and patch up any leaks.
2. Remove non-essential costs
Take a good hard look at your business expenses and find out where you can cut costs. Talk to your supplier and ask if there is a way to discounts or lower shipping fees. Reduce manual processes that consume a lot of time but are not profitable—such as accounting. Perhaps you can switch to more efficient automated systems. Review purchase requests and see if there are too many non-essentials on the list. You might benefit from using an inventory and procurement management system.
3. Look into invoice discounting
Invoice discounting allows businesses to leverage their sales ledger's value. A portion of the total amount of the invoice you send to your clients becomes available from the lender. This can provide working capital for your business throughout the month. To find out if this solution is the right choice for your company, talk to a financial management consultancy firm.
4. Put together a crisis management plan
It's a good idea to bring together a team of individuals from different parts of your organisation—legal, financial, sales, operations, etc.—to form a crisis management plan. This ensures that differing points of view from all areas of the business are represented in the final strategy. You can also bring in a financial management consultancy firm for an objective audit and advice.
This article is written by Andrew Anthony, business director at Savants. Its an independent advisory firm specializing in corporate recovery and corporate and personal insolvency. The company's licenced insolvency practitioners offer advice on insolvency procedures to companies, partnerships and sole traders.
This article is written by Andrew Anthony, business director at Savants. Its an independent advisory firm specializing in corporate recovery and corporate and personal insolvency.