30.7 million small businesses account for almost all U.S. businesses. Accordingly, small business companies create 1.5 million jobs annually and provide for more than 50 percent of new jobs created in the country. Small businesses have become an integral part of the economy’s growth, as seen in recent years.
With the coronavirus ravaging the country, the preceding few months have not been easy for small business companies. Many brick-and-mortar stores were forced to shut due to lockdown and stay-at-home regulations. While some are on the brink of never opening again, others are looking for ways to survive this crisis.
Despite the track record of aiding the economy, small business industries have their share of hardship. Only 20 percent of new small businesses survive their first year of operation. Within the first five years, roughly half flops, generally because of poor financial management, insufficient capital, and huge debts.
So how do you avoid financial pitfalls, especially if your small business is starting? Here are smart ways to prevent financial difficulties in your company:
Have Good Written Business Plan
Your company’s business idea might be good on your head, but having no concrete strategic guidelines in implementing those ideas will likely result in failure and wasted financial resources. It does not mean that you have to give up on your passion. What you need is to do some research and build a profitable business model.
You can research and review how other businesses in the same industry operate. It would help if you defined your Unique Value Proposition (UVP) ━ what distinguishes your company from competitors. Also, it is important to define your customer base, marketing plan, cash flow projection, and startup capital.
Having all concerns and aspects of your business laid out during the planning stage will increase the probability of your company succeeding since it enables everyone in the business to understand the big picture. This understanding will propel everyone in the business to direct their action toward achieving the company’s objective.
Cutoff Unnecessary Costs
Reducing cost is one of the most viable solutions to make your small business return to a profitable position. Excessive and unnecessary spending caused several potentially profitable businesses to have cash-flow problems. Your company might be spending too much on salaries, equipment, or other operating costs.
Identify the areas of your business that are too expensive and substitute them with economical ones. You can sell off unused equipment and even sublease an unused space in your office. If your business can be managed virtually, opting for a company website might be the best solution to cut down office rent costs.
Consolidating your business loans into one payment allows you to reduce your monthly costs with no harm to your credit score. You can consolidate your several short-term loans into a singular long-term package. Since you are dealing with a single creditor, you might get a loan with a lower interest rate. On top of that, consolidated loans help you to enjoy certain tax privileges.
Keep in Touch with Your Creditors
Tackling your debt problem earlier is better than putting your debts in forbearance. Doing so will only make your financial situation worse. Keep in touch with your creditors and advise them immediately if you have trouble making ends meet. Do not wait until your creditors have given up on you ━ like when they turn you over to a debt collector.
Since it is everyone’s interest to find the most workable solution, adjust your payment plan to a more manageable level. Consider lowering your interest rate, increasing your credit line, or restructuring your repayment options.
File for Bankruptcy
If all else fails, filing a bankruptcy could be your last resort to salvage your small business when you have liquidity problems. However, resorting to personal bankruptcy has long-lasting and far-reaching consequences, such as difficulty in getting credit, buying a home, or getting life insurance. Nonetheless, filing Chapter 13 gives you a clean slate.
Although a complicated and tedious process, filing for bankruptcy comes with several benefits. It stops foreclosures, garnishments, utility shutoffs, and even gets rid of unsecured debts. It can also help you keep certain assets. With an experienced bankruptcy attorney, your dire financial situation will be remedied in no time.
Starting a business is never easy, with so much risk involved. But with the right attitude, you can succeed in this endeavor.