Q: I can't admit this to anyone, but I'm afraid my small business is in trouble and may even be in danger of going under. What can I do?
A: Well, that's a dark thought. Good for you for facing up to it. And it's no comfort for you to see other small business owners in the same boat. You need to know more about the situation and your options. Let's talk about this.
First, you may think this is a big secret, but it's not. Most everybody you deal with-vendors, employees, probably even your customers or clients - they already know what's going on.
To be blunt, here are the stakes. If you can hunker down and survive the current economic downturn, you're likely to come out stronger on the other side. This is largely because some of your competitors will be washed away. On the other hand, if you don't take direct action, it's likely you'll be the one who's gone.
If sales are way down, then you need to cut expenses immediately. It's all about cash flow. As I've said before, if you're chronically out of cash, then pretty soon you're out of business.
Now is the time to get some outside advice. Pull together whatever financial statements you have, and then take action. Here are some options: Find a mentor or other trusted person to talk with. Call and get an appointment with SCORE. Set up meetings with your professional advisors (accountant, banker, attorney, others). If your business is very small and you don't have these folks on your team, realize that most local professionals, especially at smaller firms, will have an initial meeting with you at no charge.
Two immediate and fatal danger signals are 1.) Continuously declining sales and 2.) Falling behind in paying quarterly payroll taxes or collected sales tax. These are the start of what's called the "death spiral," where the worse it gets, the worse it gets.
First thing to do immediately is: Cut expenses. This will be ugly. Realize that if you delay, it will be uglier. This could mean layoffs, benefit cuts, postponed maintenance, dumping non-essentials, even downsizing to a cheaper location.
You probably can't market your way out of the hole. Consider this: if you spend $1,000 on advertising, you may or may not get back much of the $1,000. But if you cut $1,000 worth of expenses, you save the full $1,000 right now. The exception to this is a very high-margin service business, for example a hair salon or a professional service where just your time is involved.
Shutting down your business is the last resort, but may make sense. Recognize that there are several things you can do before that drastic move. Some examples and strategies:
- Make a list of your businesses' strengths, and then be frank about your businesses' weak spots. Share this with your team for their thoughts.
- Ask any customers who owe you money to pay it promptly.
- Ask vendors and trade creditors to take a discount on what you owe them.
- If you rent space, ask your landlord for a rent deferral.
- If you have excess or old inventory, mark it down and get rid of it.
- Consider re-targeting your business to a different market. For example an upscale retailer may be able to remarket itself to a more mid-market clientele.
- You could try to sell your business as a going concern. If there's a valid business structure left, that's possible. But realize that it's very unlikely anyone would buy a hurting business at more than a very distressed price.
- Be sure your business fully uses free Internet and social media marketing opportunities.
- Can you resuscitate the business with cash from another source, like friends or family?
- Danger! Be very careful about putting up your personal home equity as collateral for what is in reality a pretty risky business loan.
Also, there is a fall-back position. You could "hibernate" the business, keeping your options open for a later time. These means you would shut down, and store the physical assets (for example inventory and equipment) to bring back when times are better. Remember to put your business licenses and permits on "inactive" status.
And last, two outreach issues. If you have any secured creditors (lenders who can grab your business assets), talk with them. And if you have thoughts of filing bankruptcy, get legal help immediately.
Bravo to you for facing this problem now, while you can still do something about it, and best wishes.
Source: By Bob Dahms, Bellingham Herald
