Tough steps to save your failing business
Ensure that you have a positive variable contribution
This step is to ensure that the price you set and receive for your product exceeds what it costs to deliver an incremental unit. Follow this for every product if you have multiple products. If you price customers differently, the analysis is to be conducted at the customer level. When you come across situations with a negative variable contribution, tend to increase the price and reduce the cost providing the incremental unit or instead stop offering that service or product. There are certain rare exceptions to this rule. However, in general, you have to ensure you are making sufficient money to cover your overhead expenses for each sale.
Remember to thrive in business you most probably have to reduce your costs. Initially, eliminate all discretionary spending. Next, focus on non-people costs. Unfortunately apart of cutting costs will involve the uncomfortable decision of laying people off in order to reduce their hours or quite frankly reduce compensation. Such austerity measure is never simple, but if the alternate option is to close your business, then it is better to lay off some people in order to keep some people employed rather than for everyone to lose their job when the company shuts down.
Prioritize your payables
First of all, remember to pay those obligations which will shut down your business if you don’t. For example, paying the employees in time is crucial for the efficient running of business operations. Second, learn to prioritize items that will result in massive penalties if left unpaid. For example, non-payment of timely taxes will result in huge fines. So tend to avoid such mistakes. Next, any obligation that is late should be next in line for payment. And finally, prioritize any payments which are not yet late last.
Plan your cash flow carefully
After you have prioritized your dues to settle, evaluate and assess how much cash you have and the receivables you expect to acquire. After this, build a detailed cash flow plan that details out who you should pay, when you should pay and how much you should pay them (learn more on this blog).
Communicate with creditors
It is always a mistake to ignore the situation and hide when you owe money but is not able to afford or pay the due. Instead, find the courage and call the creditors and explain to them about your situation and your honest plans to pay the debt. Majority of people are willing to work with you only if they believe the fact that you will eventually settle any dues you owe.