Help! My Business Is In Financial Trouble. What Should I Do?
Very few experiences in business feel as overwhelming as realising that the numbers are heading drastically in the wrong direction. Perhaps cash is getting tight. Perhaps sales have slowed. Perhaps creditors are calling more frequently than you would like. Perhaps your bank balance is creating a knot in your stomach every time you look at it.
The first thing to know is that financial difficulties do not automatically mean your business is finished. Many good businesses experience financial challenges.
The second thing to know is that the sooner you face the situation, the more options you are likely to have. The biggest mistake business owners make is avoidance. They stop opening the management accounts. They stop looking at the bank balance. They delay difficult conversations. They hope that next month will somehow be better.
Unfortunately, hope is not a turnaround strategy.
Here are some recommended steps to help get you and your business back on track.
Step 1: Stop Guessing And Look At The Numbers
You need facts.
How much cash do you have?
How much cash is due to come in?
How much cash is due to go out?
How much do you owe?
Who do you owe it to?
How quickly is your cash position changing?
Most business problems become easier to solve once they are clearly understood. The uncertainty is often worse than the reality.
Step 2: Put Pride To One Side
This may be the most important step of all.
When businesses get into financial difficulty, the numbers are rarely the only problem. Fear, embarrassment, pride, frustration and worry can quickly become part of the decision-making process.
Many business owners know there is a problem long before they admit it to themselves. They convince themselves that things will improve, that a large order is just around the corner, or that somehow the situation will resolve itself.
Meanwhile, valuable time slips away.
There is a simple question worth asking. Would you rather ask for help whilst you still have options, or wait until the situation becomes visible to everyone around you?
The strongest business leaders are the ones who recognise when support is needed and seek it early.
There is no prize for struggling alone.
Step 3: Focus On Cash, Not Profit
Many business owners immediately start looking at their profit and loss account.
Profit matters. Cash matters more, especially in a turnaround situation.
Businesses fail because they run out of cash, not because they run out of profit. A profitable business can still fail if customers pay too slowly, stock levels are too high, debt repayments become unmanageable, or working capital requirements have not been properly understood.
Understanding your short-term cash position should be your immediate priority.
Step 4: Understand What Has Actually Changed
Many people jump straight into cost-cutting without fully understanding the cause of the problem.
Take a step back and ask:
Has demand reduced?
Have costs increased?
Has pricing failed to keep pace with inflation?
Have margins deteriorated?
Has working capital increased?
Has a key customer been lost?
Has the market changed, or has a competitor appeared?
Has the business grown faster than its cash resources can support?
Is this a short-term cash timing issue or a long-term sustainability issue?
The symptoms are rarely the root cause, but if you are in crisis, you have to deal with the immediate issues while keeping an eye on the reality of solvability. Before you can solve a problem, you need to understand what is actually causing it.
Step 5: Identify What Is Making Money
Not all customers are equal.
Not all products are equal.
Not all services are equal.
One of the most valuable exercises during a turnaround is understanding where money is genuinely being generated and where it is being lost.
Many businesses discover they are spending enormous amounts of time and effort on activities that contribute very little to the bottom line. Others discover that a small proportion of customers, products or services generate most of the profit.
Focus your energy where value is being created.
Step 6: Review Every Cost
This does not mean panicking and cutting everything. It means understanding every cost.
What is essential?
What is helpful?
What is no longer creating value?
What commitments made sense twelve months ago but no longer fit today's reality?
A surprising number of businesses continue to spend money on things that no longer support their future.
Importantly, this review should include the owners as well. In many struggling businesses, attention is focused on every cost except the amount being extracted by the shareholders or directors. Whilst owners need to live and be rewarded for their efforts, periods of financial pressure often require everyone to contribute to the solution.
Understanding the true cost of owner drawings, dividends, salaries, and other forms of extraction can be just as important as reviewing suppliers, overheads and operating expenses.
The goal is not simply to cut costs. The goal is to ensure that the business retains enough cash to survive, recover and eventually thrive.
Step 7: Speak To Key People Early
One of the most common mistakes I see is silence.
Business owners avoid difficult conversations because they fear the outcome.
In reality, suppliers, lenders, investors, advisers and key stakeholders are usually far more willing to help when they are informed early rather than when they are surprised later.
Most people can work with a problem.
Very few people enjoy discovering one after it has become critical.
Step 8: Decide Whether The Business Is Viable
This is often the hardest question.
Can the business return to sustainable profitability?
Can it generate positive cash flow within a sensible time frame?
Can it support its obligations?
Can it provide a return for the effort, risk and energy being invested?
Most importantly, what is required to get there?
Sometimes a business needs time. Sometimes it needs investment. Sometimes it needs additional working capital. Sometimes it needs restructuring. Sometimes it needs a different business model altogether.
Additional finance can be incredibly helpful if it solves a temporary problem and supports a viable business. However, borrowing to support a fundamentally unprofitable business often delays the problem rather than solving it.
The key question is whether the business has a sustainable future once the immediate pressure has been relieved.
Sometimes the answer is yes. Sometimes significant changes are required. Occasionally, the best decision is to stop.
There is no shame in facing reality. Good leaders deal with the truth, even when the truth is uncomfortable.
Step 9: Create A Plan
Once you understand the situation, create a simple plan.
What needs to happen this week, day by day, if necessary?
What needs to happen this month?
What needs to happen over the next three months?
Who is responsible?
What does success look like?
A plan creates clarity.
Clarity reduces fear.
And reduced fear usually leads to better decisions.
Remember This
Financial difficulty does not mean you have failed. It means you have a problem that needs to be solved.
The sooner you stop viewing the situation emotionally and start viewing it commercially, the sooner solutions begin to emerge.
Most business problems are solvable. The challenge is finding the courage to face them early enough.
Need An Experienced Pair Of Eyes?
When businesses encounter financial difficulties, it is often difficult to see the situation clearly from the inside. An experienced external perspective can help identify the real issues, separate symptoms from causes and create a practical path forward.
If your business is under financial pressure and you would like support in understanding your options, improving cash flow, reviewing profitability or creating a turnaround plan, I would be delighted to help.
Book a call with Ogilvie Advisory, and let's understand the problem before it becomes a crisis.
