Despite the pandemic, businesses still face difficult times no matter the time of the year or circumstance, which is why you should always have an effective plan in place to help your business survive in its most critical moments. Here, Forbes Burton shares some general thoughts and how you can handle most of your struggles and demands.
Firstly, make sure your business product or service makes a positive contribution.
Getting a positive variable contribution indicates that all the money you receive will exceed the initial costs of delivering an incremental unit. (A prime example of this could be a service performed for an extra hour or to make an extra widget.)
If your business is struggling, make sure you implement this for all of your products, or if you have a different price for you customer, take a look at the customer level. In the event you do discover a negative variable contribution, you should boost up the price of your service/product and decrease the cost of the incremental unit, or ultimately bring an end to that aspect of your business that you are offering.
Prioritise your outgoing payments
If you have outgoings that are exceeding the cash you have available, then you need to make prioritising your pay a mandatory task.
We would advise that you prioritise your payments in this way:
Make sure you pay anything that is capable of shutting down your business if you fail to provide them with a payment. For example, if you can’t pay your employees, then they may decide to leave and look for a competitor who is willing to pay them their earnings. However, if you cannot provide your products or services when this happens, then you will not be able to keep your business running.
Any items you have that lead to hefty penalties should also be high on your list. Something as vital as not paying your taxes on time can accumulate large fines. So, if you can avoid this problem, then make sure you do so.
Any of your late payments should be the third thing in line and any payments that are not late yet should be prioritised last.
See if you can cut any costs
The first task is try and remove any discretionary expense – letting go of things such as company outings or anything else that is classed as none essential.
You then need to see if you can find any gaps where you can reduce the money of any travel costs or additional utilities. If you talk to people, then you may find yourself in more enlightening circumstances, which could include your landlord reducing the rent for a certain period of time, if you provide an empty space during your insolvency.
Another long consideration, which is unfortunate but may have to be done, is to think about reducing work hours, laying off staff or compensation. However, it is better to have your business remain running with less staff, then everyone losing their jobs and for your business to be shut down.
Stay in contact with creditors
If you are facing this current situation, then you may be drawn to ignoring everything that is going on within your business and try to hide your face from the people who are asking for your money. But this is in fact one of the biggest mistakes you could ever make. In this time of crisis, get in touch with your creditors and try and let them know more information about what is going on, alongside your plans to sort out all of your owed outgoings.
You may not think this, but most people will still be more than keen to work with you if they fully believe you can settle everything you owe.
For example, if you owe the bank money and you know that you won’t be able to keep your sacred promise, because you either won’t be able to meet up with the payment deadline or certain requirements, then make sure you get in touch with your banker, as their main focus is to receive any repayments.
In this circumstance, try and provide a proactive plan, which will help settle your payment plan, and therefore they will be more interested in working with you.
Take this time to plan, especially your cash flow
Now that you have concentrated on what you need to pay, make sure you now access all of the cash your business has to offer, alongside the receivables you are expecting to obtain. Take this time to form a comprehensive cash flow plan that highlights who you are going to pay, how much and the times of these payments.
If your business is struggling due to COVID-19 or any other circumstance, then make sure you implement these steps moving forward. Do not leave a delay on these relevant actions.
With thorough planning, you can boost your business back to the way it used to be.
