How to survive when your business credit runs dry
Keeping any business afloat during challenging economic times is difficult, and even more so when your credit is running dry. Unfortunately, there is no definitive rule book on how to weather the storm and guide your business through to better times, unscathed.
Every business, sector and industry is different, and each carries its own set of rewards, risks and considerations. This means that, in most cases, it simply isn’t feasible to copy another business’s turnaround strategy step by step.
Regardless, there are still some general strategies that can be used to help turn your business around. Even when your credit facilities are drying up.
Here’s what you need to know about keeping your doors open when you’ve run out of credit.
Adopt big picture thinking
Most business owners will immediately address the most obvious problems their businesses are facing, which makes sense in certain situations. However, it’s necessary to take a few steps back and look at the bigger picture. In doing so, you can see where these financial issues are stemming from and what you can change to address them at their core.
Doing so gives you the chance to better assess the scope of existing issues. Plus, it allows you to understand your business’s model on a deeper level. This helps you to identify how its strengths and weaknesses play their roles in your current challenges.
Let’s take the example of a small business owner who’s facing cash flow issues, and finds that one of their employees makes constant inventory errors. These errors cause frequent overstocking of certain products. Firing that worker and hiring a new employee could address the issue initially. But it may be wiser to check whether the hiring manager who hired and managed the original employee had trained them correctly.
If the manager failed to provide proper training, firing them may not be an ideal approach either. Especially if they have a knack for bringing in repeat business and revenues. Retraining them may be a more workable alternative that improves your business’s financial standing without having to shoulder the costs of staff turnover.
Assessing the strengths and weaknesses of your workers will give you the chance to look at issues from a top-down perspective to minimise the chances that they will occur again. You should also analyze your products and services and your business’s market position in this way to predict future scenarios and plan accordingly.
Don’t overlook small operational issues
Big picture thinking is important.
However, it’s equally important to ensure that you don’t overlook small factors that can negatively impact your business. These factors could be as simple as poorly visible signage for your premises, inadequate parking for customers, exorbitant office supply costs, insufficient road access, or an outdated marketing strategy that does not properly capture the interests of your target audience.
These factors seem minor at first glance. Yet they can seriously impact your company’s bottom lines. Considering the many factors that bring your customers to you can help you identify issues. You can then correct them before they have the chance to drain your bank accounts and strain your credit facilities further.
Prioritise quality
It may be tempting to cut corners financially by reducing the quality of your products and your customer service. Especially when times are lean. However, it’s actually more important than ever at this point to avoid sacrificing quality when making changes to your services and products.
Saving money by making small changes to products could work in the short term. But if your loyal customers become dissatisfied with your core offerings, you could suffer even worse financial setbacks. Your sales will decrease and your customer pool will dwindle.
The key here is to make cost cuts and adjustments that don’t compromise the quality of your finished products and services. You could, for example, source more cost-effective packaging, find a cheaper logistical partner, or source materials of an equal quality at better prices from different suppliers. Your customers won’t know the difference, but your budget will thank you.
Consider accessing a home equity line of credit (HELOC)
If you have a Home Equity Line of Credit in place, you could investigate how much you can borrow against it as a last resort to keep your business operating. HELOCs allow you to borrow against the equity you have in your personal home. They also tend to come with minimal fees and relatively low interest rates.
Still, it’s important to bear in mind that HELOCs should really only be a final resort when you’ve cut costs, sold unnecessary assets and equipment, streamlined your workforce, and done everything else in your power to save your business. This type of loan may provide just enough financial flexibility to tide you over until the funds are replenished.
Streamline access to cash
Times may be tough, but it’s still essential to ensure that your business has access to sufficient cash during times of crisis. Opening a new line of credit can fund short-term cash flow issues. But if your credit is already running dry or you don’t have a HELOC, this may not be a viable option.
It’s for this reason that you should have other possible sources of capital available to you. You may be able to tap into your savings, borrow from friends and family members, attract the attention of investors, or even liquidate your stock holdings to tide your business over.
Now is also a good time to take a closer look at your accounting systems and procedures. If you’ve been lax with invoicing or have several customers who have outstanding bills, now is the time to address this.
Ensure you have a proper invoicing system with clearly outlined payment terms and potential penalties. Organise your payment records and ensure that you have complete control over your finances and your financial situation. You may find that you are owed money that l tide you over.
An age-old problem
Every young business has faced cash flow and credit problems at some point or another. Especially since mid-2020, when the Covid-19 pandemic threw the world’s economies into turmoil. The key to making it through these challenging times is to streamline your operations and minimise your operational costs. All without significantly impacting the quality of your brand’s products, services, and customer experience.
If you have reduced your expenses as much as you can and you are still struggling to make ends meet, borrowing from a Home Equity Line of Credit may give you enough leeway to keep your business in operation until you can repay your debt and start turning a profit again.
