Saturday, September 21, 2013

Saving a Money-Losing Business With a Business Survival Plan

Here are some business survival tips for businesses going through tough times.

Small businesses are incredibly sensitive to both good and bad fortune. Catching an important entrepreneurial trend can result in quick growth and outsized profits. Unfortunately, the opposite is also true. When the economy sours, or for some reason your business niche falls out of favor, profits can turn into losses fast.

It's exciting and fun to expand a successful business by hiring additional employees, buying more equipment, renting new space, and doing all the other things necessary to grow. But there is precious little joy in quickly downsizing a business that has become overextended, especially one that has borrowed heavily to fund expansion, only to find that a declining market won't sustain it. Unfortunately, entrepreneurs whose businesses are suddenly operating in the red typically start by either denying they are in trouble or underestimating the severity. The result is that many businesses that could have been saved by rigorous early action quickly become so debt-burdened that they die unnecessary deaths.

When your business is suffering financial troubles, we recommend a three-step approach to making sure your business survives.

Step 1. Create a business survival plan. For example, if in the past six months, sales have been down 30%, your plan should convincingly explain how your business will be able to cut expenses, increase sales, maintain or reestablish an adequate profit margin, and manage (or attract more) cash so that in X months you'll be both profitable and have enough money in the kitty to bring past-due bills current.

Step 2. Prepare a current profit-and-loss statement and cash flow analysis. You can't do the planning or take the action that will be needed to turn around a recession-battered business unless you fully understand your business's key numbers.