Running a business can be a thrilling and terrifying experience. When things get hard, you can often feel alone. Especially when you hear about other companies with hardly any challenges while always turning a profit; guess what, It’s all a lie. We all know that people like to put a filter over their personal lives on social media, and businesses are no different. There is always more going on behind the scenes than we see.
Here’s why this is important…When you find your business losing money, understand that it is completely normal. Here’s the good news: You can solve it with the right tools.
Below, you will learn eight ways to navigate a financial crisis in your business and why working with us at Simple Operations could save your business from going under.
Understanding the Ups and Downs
It’s important to remember that all businesses, big or small, will face challenging times. Think of this like the scary part of the rollercoaster. Sometimes, it’s because the economy isn’t doing well or a worldwide issue like a pandemic occurs. These slow periods, where money might be tight, can happen to anyone – even the most successful businesses.
The bottom line is that acknowledging and validating where you are right now is the first step to making progress. It can be easy to get stuck judging yourself for the place you are in right now, but do not let it hold you back!
Once you accept where you are on your entrepreneurial journey, you can proceed with step two.
Being Smart with Optimism
Entrepreneurs are often optimistic. The truth is that, often, they are too optimistic. They believe their business will return to normal if they stay positive. Positivity is wonderful, but sometimes, it might stop us from seeing the problems. Thinking everything will improve on its own might slow our reaction and lead to poor choices.
So, be smart about how optimistic you are. Try to be unbiased. If you are losing money, you should start taking action soon. Do not wait until it is too late.
Addressing the Issue
Now that you understand the truth about your situation, it is time to act. Addressing the issue is the most crucial step you can take.
First, we need to face the situation bravely. As entrepreneurs we can struggle with imposter syndrome when our business loses money. Overcome your imposter syndrome and step into your role as a visionary with courage.
Second, you should know your financial standing by watching your money: what’s coming in and what’s going out. You should understand how much “runway” you have. Think of your “runway” as the amount of time your business can keep going with the money you have if things don’t improve. It is the ticking clock of how much time you have left.
Here’s how to calculate your runway.
- Identify the amount of money you lost in the last month.
- Divide the money you have in the bank by that number.
- The result is how many months you have left.
For simple math, if you have $100,000 in the bank right now, and last month you lost $10,000, you would have ten months of runway.
Bottom line: If your runway is less than six months, it’s emergency time, and big decisions must be made.
But how do you know how much to cut if your business loses money?
Smart Spending and Cutting Costs:
Look at all your business expenses and decide what’s necessary and what’s not. Non-essential spending should be reduced to help your money last longer. This can mean cutting your staff, going virtual to reduce overhead costs, or shutting down SaaS subscriptions you are no longer using.
This is not an easy process. There is a real emotional impact from making cuts in your business. There are tools and resources to make this process run smoothly, but ultimately, making these cuts hurts. It is one of the many traumatic experiences that come with running a business.
The reality is that without making cuts, the business will stop existing. The only path forward is to cut, but the real question is, what happens if you do not cut enough?
Choosing the Best Path
When money is tight, we can choose two main paths:
- Cut expenses aggressively to reach profitability again quickly.
- Cut only a bit, keep things running as they are, and hope for recovery.
The first path might be difficult, but you might run out of runway if you do not cut enough. Hope is essential to this process, but it is better to hope in recovery once you have cut to the point of profitability.
The second path usually leads to the business closing down.
Relieving the Pressure and Noise
Financial pressure can strain a business, making it hard to grow and make decisions. Reducing expenses means you have a better chance of recovery. Cutting costs in your company is all about sacrifice for the greater good of the business. You need to decide what you can let go of to recover. Sacrificing things like
- Overhead Cost – if your company has a physical office, you can rethink whether this is essential. It could be time to go virtual.
- Staff – firing people is one of the hardest things to do as a business owner, but sometimes, the decision to cut down on staff is the thing that saves you. Take a good look at who on your team is 110% necessary. Sometimes, you need to cut down to only the executive team.
- Unused Subscriptions, Services, and Programs – cancel any unnecessary subscriptions. These subscriptions seem like small expenses, but $15 monthly can add up quickly. Renegotiate program and service subscriptions, like insurance or internet. A lot of the time, these companies will lower your rates.
Building Strength for the Future
If your business is not currently losing money, building a financial safety net is vital. If you are losing money, once the crisis is managed and things are looking up, you should build one as well.
Aim to reserve money to cover 6 to 12 months of operating costs. This can shield your business in the future, giving you time to make decisions without the stress of a possible crisis. Having savings in place will provide you with an added layer of safety.
Putting your team at ease in a crisis allows the team to operate better under financial stress.
Teaming Up with our Team at Simple Operations
Consider seeking expert help, like our team at Simple Operations.
If you want to speed up business growth and install effective systems, consider exploring resources like our membership at Simple Operations. We specialize in helping visionary entrepreneurs hire and manage teams, develop predictable strategies, and propel their businesses toward tremendous success.
- Facing Financial Hurdles: All businesses can face financial challenges; it’s normal and manageable.
- Balancing Optimism: Be realistic, ensuring swift and appropriate action is taken.
- Understanding Finances: Know your numbers to navigate through financial struggles wisely.
- Making Smart Cuts: Reduce unnecessary expenses to extend your financial runway.
- Choosing the Right Strategy: Opt for a path that aligns best with recovery and growth.
- Getting Relief: Start cutting expenses from anywhere you can.
- Building a Safety Net: Once stable, create a financial buffer for future security.
- Working with Experts: Consider partnering with professionals to boost recovery. Experts like us at Simple Operations help people in your situation daily. Having someone specializing in what you’re going through can make recovery smoother.
Remember, confronting financial issues in a business is challenging but possible. With the proper steps and support, your business can navigate rough waters and become successful. Embrace these strategies to flow through the rough patches and emerge stronger. Your business’s success story is just waiting to be unfolded. And remember, these things happen in every company; your business is broken, and if things go well, it always will be.