What to do if your business runs out of money

Editor’s Note: Here at Dispatches, we are always looking for ways to help our readers do things. For some of our readers, that means helping navigate the working world, for others, it means assisting in the ever challenging question, “what’s for dinner?” For still others, it means figuring out how to balance family life with everything else. In an effort to aid in all of these endeavors, we have collaborated on this article written specifically for our readers.

If you’ve started your own business, you probably did a lot of research beforehand. One phrase that you would have seen pop up quite a lot is “cash flow.” It’s essential that new businesses manage their cash flow properly because the most common reason that startups fail is that they simply run out of money to pay the overheads before they break even. That’s why it’s important that you’re managing your cash flow properly right from the start. But even if you do everything right and you keep your spending in check, it might take longer than you think to break even and start making a profit. If that’s the case, you can still run out of money regardless of how frugal you are.

That could mean the end of your business, but in most cases, there is a way back. Running out of money is scary but if you handle the situation right, you can find additional cash to keep you afloat until you start bringing in enough revenue to cover your running costs. Below are a few tips if you ever find yourself in this situation. Of course, you should always consult with a local accountant if you have sepcific monetary questions 

Remain Calm
This is the most important step. If you start to panic, you’re only going to make bad decisions which may make the situation a whole lot worse. The worst that can happen is that the business will fail. That might sound like a terrible outcome, but you’ll still come out the other side and you can start working on your next business venture. It’s very rare for successful entrepreneurs to get it right the first time so don’t see this as the end of your business career, it’s just one of the many hurdles you’ll have to overcome before you find success.

Try To Cut Costs
Hopefully, you’ll be able to see a crisis coming a few months before it actually hits. This gives you an opportunity to do something about it. When you sense an impending cash flow issue, that is the time to start stipping back the business as much as possible. Review all of your staff and see whether there is anybody that you can afford to lose. Just remember that you still need to increase revenue if you’re going to survive. That means you’ve got to be careful about where you make cutbacks. For example, you can save a lot of money by cutting back in the marketing department, but then you’re not going to be able to bring any new customers on board. The key is to cut unnecessary spending while still spending money on the departments that are bringing in revenue.

Assess Funding Options
Cutting back on spending is an essential step but it’s not going to save the business. It’ll buy you more time but you need to find a long-term solution if you’re going to survive. What you really need is more funding and you should plan to spend some time to start looking at your options. If you’ve already lost quite a bit of money in the company, banks are probably not going to consider giving you a loan. You could get a quick loan from a personal finance company and they’re less likely than the banks to consider your financial past which is a big bonus if the company isn’t performing too well at the minute. Weigh your options and consult with a local accountant.

You can also consider finding some more investors for the business but you’ll have a bit of a battle on your hands. Naturally, they’re not going to be that inclined to put their money into a business that’s failing but if you can convince them that you can make it work, you might be in with a chance. If you do manage to get an investor to meet with you, you need to be prepared. Take detailed financial projections and outline exactly how you’re going to use their money to get the business going and make it work.

Mergers or partnerships are another option. Look for any companies that might be interested in merging with you and draw up a proposal. If you’re going to convince another company to take on some of your financial responsibilities, you need to give them a good reason why they should do that. When you’re writing a proposal, outline all of the ways that a merger with your company would benefit them.

Plan How You’re Going To Spend The Money
We hope you have no accessed your financing options and found some extra cash. This is when it is critical that you are incredibly careful about how you spend it. If you don’t make any changes, you’ll end up burning through that money quickly and you’ll be in the same position as you were before. This extra funding is an opportunity to change your strategy and attempt to boost sales. If you aren’t making that many sales then your marketing and sales tactics clearly aren’t working. Spending all of your money on the same strategy is just a waste. Have a rethink and come up with a new, cost-effective marketing and sales strategy. Without a proper spending plan, you can easily end up wasting that money without making any meaningful changes to the company.

Plan For The Future
Hopefully, you’ve managed to find some extra funding and you’ve come up with a great new strategy that has successfully increased sales. You’re out of the water for now and things are going well but that doesn’t mean you’re guaranteed success forever. You could easily end up running into the same problems which is why you should start planning for the future. Try to identify the reasons that you got into financial trouble in the first place and make changes to avoid it in future. It’s also a good idea to start putting money aside each month so you’ve got a buffer if you do run out of cash again.

Advertisements

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.