Many business owners and entrepreneurs go into panic mode when their business hits tough times.
And I should know because I was one of them.
But I can tell you from personal experience that there are two categories for businesses:
- Those who have experienced tough times and have dealt with them.
- Those who are going to experience tough times.
So remember, you are not alone…and this is where business mentoring along with other specialist business advice, can come into play and really help you.
But, here I am talking about real business mentoring and real business advice, coming from a business mentor or advisor that has been thoroughly “field-tested” and who is battle-hardened.
I have survived 3 recessions and incidences that would have tried and tested the most determined of entrepreneurs…and I am still here to tell the story — in the hope that I can help you to not make the mistakes that I did.
Survival wasn’t pretty by the way and it involved working through some very dark times…it’s a lonely road.
Business mentoring is about your mentor being able to “jump in your shoes” and be able to instantly understand both the problems and challenges you are facing right now…and predict those you are likely to face in the future.
And of course, they have to be able to solve them…or know someone who can!
Let me give you some quick tips to help you, but I must say that I am simply offering my opinions here and in no way trying to give you any financial advice, or any advice relating to the legal requirements of operating a business that has hit troubled times.
You must get specialist advice from your lawyer and accountant/specialist financial advisor.
But there is a lot you can do!
Check your cashflow
Cash flow is king and it is a key indicator of how your business is performing…or not as the case may be.
Everything in business starts when a sale is made, but then you have to collect the hard-earned cash, in order to be able to reap the rewards and enjoy the fruits of your labor.
However, you can have cash flowing into your business and still not be profitable…and that can give you a false sense of security.
Ultimately, you have to be profitable and as the saying goes:
“Turnover for vanity…profit for sanity.”
If you are not making profits, but your cash flow is good, then time will catch up with you as ultimately, you have to finance those losses.
I had this situation in my early business career and we were simply plowing our previous profits back into the company to finance the losses.
But you have to be concerned as to why those losses are occurring.
In our case, it had nothing to do with sales, but everything to do with our expenses, which were way out of line in relation to sales.
We had a good business advisor who advised us to immediately produce a cash flow forecast and one that would give us a continual and real-time view of the business, rather than working from our previous projections and reconciling our bank statements!
Prepare a dynamic cashflow and one that will take into account various “what if” scenarios.
Make sure that you can cover:
- Supplier payments.
- Fixed costs
- And that you have enough capital in place to finance the business operation.
You would be surprised as to how many companies do not have a handle on these matters and on a real-time, day-to-day basis.
And I was a part-owner of one of those companies — it sounds obvious when you look back, but when you are in the thick of trying to grow and run a business, it is easy to lose sight of the obvious!
Your cash flow is the real indicator of your business so don’t ignore it.
Now we come to your customers and you have to make sure that they are within the credit terms that you have allowed them.
Many large companies specify the credit periods as part of the supplier agreements they want you to sign and this is where problems can slowly creep up over time.
The chances are you are not a bank and therefore lending money is not within your remit…but that is exactly what you are doing when you are granting your customers credit terms in relation to work and services that have already been done/performed.
Poor credit management has cost me hundreds and thousands of dollars over the years and it is a key factor in the demise of many companies.
And if you are an online business that takes money upfront, then you will probably have a refund policy, which in some ways, is the same.
I remember receiving a personal call from a manager at one of the world’s most famous credit card companies explaining to me that they were going to reduce the credit limit on my account.
They had obviously done their homework and knew that my business was operating in the booming tech industry of the late 1990s/early 2000s, that was on course to collapse.
But to their credit (yes, it was a deliberate use of the word), they were on top of their game…for once!
You should be constantly reviewing the credit terms of all of your customers, just as your suppliers should be reviewing you.
Communicate with your creditors
This is one area that in my first experience of tough business times, I failed miserably to do…but in later years, it worked to my advantage.
The chances are that if your business is in trouble, then your suppliers are also in trouble.
If you are a restaurant in a recession and times are hard, then your revenues will be down — so the suppliers that bring you the freshest meat, fish, vegetables, and drinks will also be reporting a downturn in trade.
I know this sounds like I am teaching you how to suck eggs, but you have to believe me when I tell you that so many people miss the absolute obvious.
In this restaurant example, some suppliers are so grateful for landing a big restaurant account, that they will do anything to keep it, and even if it means not screaming about that late invoice for the fifty filet mignons they provided twelve weeks ago and still keep providing.
However, the restaurant has an obligation to make sure that it is trading responsibly and that means that it is not incurring credit from any supplier if it knows that there is no hope of being able to pay that supplier.
This is because they would be trading while insolvent.
This is a criminal offense.
But there is another side to the coin — the owners would probably argue that they are trying everything possible to generate business in the hope that they could sell the products, so they have an expectation that things could change and their fortunes could turn around and they need the credit to be able to trade!
It would be a totally different scenario however if the restaurant owners took the products and sold them for personal gain outside the business or simply ordered the products for their own personal use.
Be careful if you are incurring any form of credit in tough and challenging times.
The key point I am trying to make here is that you should communicate with your creditors and explain the circumstances that you are facing — they should be understanding as the chances are they are in the same boat!
Remember, I am not giving you specific insolvency, financial or legal advice…just my opinion and you must obtain professional advice.
Time to sell the Ferrari and time to put off that expensive villa purchase!
When you are facing tough times, you need to conduct a line-by-line analysis of each and every expense.
When I faced the tech-crash of the 2000s, I had to sell some prized assets — I needed the cash and it helped me keep my business afloat.
But my finance provider had also commissioned a report on my company (that I had no choice but to pay for), showing that I had around $1m of unnecessary expenses!
Here was the problem…and it had come down to the word “unnecessary.”
“How could I have been so inefficient and how could I have racked up so much expense?”
These were the questions that I faced and the answer existed in the area of staffing (I had way too many staff in relation to performance), ancillary expenses that were a luxury…and what I was personally taking out of the business.
I was the easy one to fix as they provided a “guideline” salary for me to draw that if I chose not to accept, would result in their withdrawal of financial support.
Then came the redundancies and cutting of the other expenses.
I was grateful in a way because they forced my hand…and rightly so.
I had allowed the expenses to spiral out of control in my business and my credit policies to become questionable!
Don’t make my mistakes and go through each expense and make sure that it has a benefit to your customers.
Sales and marketing
Now here is where you can really make a difference.
In tough times, many people forget their sales and marketing activities and fall into the trap of believing that nobody wants to buy.
This is your greatest opportunity to shine and simply start by increasing your activity.
Contact more people than you ever dreamed of — get to the top, the leadership layer of your customer, and start to influence rather than simply sell your services.
Tough times don’t last…tough people do.
You must also get creative and that means really digging deep and examining what you are really offering.
Tough times require tough solutions and sometimes they are never explored because we are living in good times.
Now don’t get me wrong, because I am not saying that I welcome tough times in any way shape or form…but there is a certain level of focus, that comes with these times and call it a primal instinct or whatever description suits you.
There is something intrinsic in us, that allows us to thrive under pressure…embrace it.
In such times, I have called together my “trusted voices” and they are not just the people who lead the business, they are the people who are not frightened to voice and opinion and will do so without fear.
And these voices ranged from junior employees to seasoned entrepreneurs, mentors, and advisors.
It is through these opinions that you can at best, reshape your entire thinking and start to design new products and services, or that you are able to confirm that what you are already doing is right.
During all of the recessions I faced, I maintained customer focus — in one example and where I was supplying key contract or temporary staff to a customer that had a major contribution to my turnover and profits, they decided that the new charge rate, for each individual person concerned, was way too high.
In turn, they reduced the charge to the rate I was paying the person to do the work!
It was a “take it or leave it” option.
The customer was very happy to sit down and discuss the problems and challenges they were facing and the decision they made was in response to their own challenges.
You must have a deep understanding of the problems and challenges your customers are facing…especially in the toughest of times.
Have meaningful discussions and resist the temptation to “sell.”
As a result, I took it as it meant taking the new option or going out of business.
In reality, I had to re-work and re-engineer my business to suit the new “market rate.”
Then came the job of having to explain the new rates to the contracted engineers in question and I faced a garage of questions, as you can imagine.
The result was that the market had moved…and we all had to move with it, or in my case, face bankruptcy.
Now if all of this action I have described so far and any other action for that matter fails, then you have to enter the specialist area of insolvency and contact a specialist bankruptcy lawyer.
And even if you are at this stage (and I have been), all is not lost!
I will produce a detailed article on this subject in the future.
Keep your spirits up!
Tough and challenging times can bring out the best in people.
Whenever you and your business are facing tough and challenging times, you must make sure you are legal and compliant at all times — take specialist advice from your lawyer and accountant and at the earliest opportunity.
Take immediate control of your cash flow, look at your credit management policies, rationalize your expenses, and take the opportunity to double down on your sales and marketing efforts as it will reap dividends in the long term.
Ultimately, it doesn’t matter whether you have failed or not…just that you have tried your best to succeed and survive!
That’s the conclusion that I must give you.
Don’t bury your head in the sand…the problems will not go away and will only get worse over time.
Please share if you think this can help anyone and don’t hesitate to get in touch if have any questions!
Last modified: September 9, 2020