Significant changes in the external environment or within the business can result in challenges that may require survival adjustments. And in most cases, the early days of establishing and scaling a new business also present numerous financial challenges to business owners.
A global health pandemic like Covid-19, a regional war, unavailability of raw materials, and government policy shifts, for instance, are external factors that may create challenging times for many businesses. On the other hand, internal factors like workplace accidents and mismanagement of resources could also expose your business to setbacks.
Challenging times present a double-edged sword that can wipe out your business or present the chance to re-strategize. In such cases, managing your business finances efficiently can help determine your survival and later influences your growth rate. taking out a business loan during a turbulent season, for instance, can be a way to ensure you make it to the other side and emerge stronger.
Five Tips For Managing Your Business Finances
Managing your business finances during challenging times characterized mainly by low revenues is critical. The following tips can guide you in managing your finances:
- Manage Your Working Capital
The ability to meet short-term obligations like rent, employees’ salaries, and procurement of raw materials is critical for your business’s survival. However, this can be challenging if you’re a small business trying to scale up in a capital-intensive industry like manufacturing. This is especially since inadequate working capital can often lead to missed growth opportunities and reputational damage when you can’t pay your suppliers on time.
When your main challenge is insufficient capital to cater to daily business operations, applying for working a capital loan can help you keep running and allow you to scout for other opportunities. Since a loan must be repaid with interest, determine how much money is required and only borrow what you need. You can get a working capital loan from any financial institution that gives small business loans.
- Monitor Your Cash Flows
Most small businesses struggle with adequate cash flow management. And during challenging times, monitoring your cash flow is critical to help you understand what’s happening with your business finances. You can use your accounting software to generate cash flow charts regularly or have your accounting team prepare them manually.
While monitoring your cash flow is always important, it’s even more critical during challenging times. For one, it can allow you to control expenses to avoid deadly financial traps that can bring your business down. In addition, adequate cash flow management can also help guarantee that your working capital is only allocated to activities with a quick return on investment (ROI), which is essential during difficult times.
- Apply For Favorable Payment Terms
You can request an extended repayment period if you already have established relationships with your vendors. Getting a few extra days or weeks to make payments for various supplies goes a long way to finance your purchases for different production inputs at no extra cost. It also enables you to settle more urgent demands like salaries and wages.
If you have business loans, you can request your financing partner to reschedule your repayment plan to a more extended period with lower amounts. And suppose you’re struggling to meet basic financial requirements that keep the business going; you can request a repayment break for a specific period, followed by a flexible repayment plan that allows you time to recover.
- Resource Management
During difficult times, evaluating the value of all business resources, including financial, physical, and human assets, is critical. If you have idle assets that only improve your balance sheet figures, it might be time to consider disposing of them or putting them to better use.
For example, you can sell idle machinery for cash to fund various business operations or lease it to another business. However, only decide to lease machinery after comparing the monthly rent against factors like wear and tear while it’s operational. You can also lease out idle land or office space to generate finances to help you pull through a difficult season.
If there are gaps between your outputs and your wage bill, you may have to resort to business restructuring that includes rendering some staff members redundant. The savings on salaries and wages can be channeled to critical business activities. Where letting go of staff members isn’t viable, you can engage them for ideas for additional sources of revenue.
- Weigh Other Options
Sometimes, remaining afloat during difficult times might necessitate a combination of strategies to manage your business finances. One of the options you can consider is relocating to a cheaper city and moving your business premises to your home compound. If your business is distributing finished goods, you can opt for an eCommerce business model and eliminate warehouse expenses by collecting goods from manufacturers when you have scheduled deliveries. You can also sell your business shares to raise additional business finances.
Final Word
Managing your business finances during challenging times requires using multiple strategies, including borrowing finances, reduction in spending, and monitoring cash flow. In addition, approaching a financial institution that offers business loans to small businesses can also be a way of boosting your business finances and supporting your operations during difficult times.
