Clients are dropping off, cash flow is slowing and revenue growth is stagnating. The symptoms and the causes of business stress may be many and varied, and it can happen to any business at any time.
If a client’s business is going through a tough time, it’s important you urge they confront the challenges head-on and quickly, in order to minimise any financial and personal stress and ensure the business has the best chance of a full recovery.
Below are some key considerations those supporting SMEs who are looking to trade out of a slump should be aware of. Helping the owner address these priorities early on can minimise any financial and personal stress and help it trade out of difficult, which means a better and longer-standing client for your own business.
1. Seek professional help
In challenging circumstances such as these, it is important to reach out for expert help. Speak with your accountant, engage a business adviser/consultant, reach out to other business owners and conduct your own research to help define the problems, symptoms and causes. A turnaround or recovery is an enormous undertaking requiring a lot of energy, stamina and courage, and to get it right it is wise for the business owner not to ‘go it alone’. Some good advice early can make all the difference.
2. Work to trim costs where you can
This is an obvious first step, but it can be the hardest. The fact is you may need to look at your running expenses, employee benefits, staffing and other costs to reassess which are essential and those that can be cut. You need to be brutal here if your business is to recover. If you see that a product, process, someone or something doesn’t add value to the business and to the business’ clients, it’s time to reconsider it. The excess cash freed up from this process can be re-invested in addressing the underlying issues facing the business.
3. Get the cash in, fast
Apart from cutting costs, measures should be taken to keep the cash flowing so day to day trading can be funded such as paying the bills, buying stock or paying your staff.
Invoice sooner and make sure payments systems are flowing smoothly, including collections. Document credit control processes and urge action to be taken as soon as invoices are late. If clients have 30-day terms, the collections department should be chasing payment on day 31. The team responsible for managing cash flow should have the support it needs at this critical time to perform this task without delay.
Offering early settlement discounts or charging penalty interest on late payments is one way of giving debtors a good incentive to pay on time. Credit should not be provided to any debtor of course, and new debtors should typically be put on cash terms initially or credit checks should be run.
4. Invest in and maintain good relationships with the business’ funder
If the business has finance in place with a bank or other lender, it is important that the business be encouraged to visit the lender to discuss the scenario and options to restructure the finance to provide the business some breathing space. It’s important to do this sooner rather than later while you still have time and space to move and the goodwill of the financier. Make sure you’ve got all your financial statements, a clear plan for trading out of the current scenario and other documents or information available before you go see your lender as this will give the financier confidence in the client’s ability and motivation to effect the turnaround.
5. Motivate your staff (and yourself)
A successful turnaround will ride, often to a very significant degree, on the performance and retention of staff during this critical period. The business’ staff need to be motivated to do well. Communication needs to be strong and goals set and conveyed regularly. Leadership at this time is key and engaging staff on solutions to specific problems can be critical to defining and implementing the change necessary to effect the turnaround. Reward and recognition of performance are also important in this scenario.
Perhaps most importantly, the business owner/manager should never lose sight of their importance to the process. Positivity, motivation, stamina, open-mindedness to change and energy are all critical (and finite) resources in these situations, so they need to look after themselves and keep in the right frame of mind.
6. Conduct business process reviews
As time goes on, business processes can become entrenched and inefficient. A business process review will help the business evaluate current practices and assess whether they are fit for purpose, prioritising those areas of the business which impact most heavily on the cost base and on revenue (cash generation). Reviews should identify areas of wastage and importantly lead to new, more streamlined processes which put valuable resource back into the business.
7. Set clear objectives and communicate them
The importance of goal setting in steering a business in the right direction is obvious. What exactly does the business need to accomplish during this turnaround process? What does success look like? Once goals are defined a roadmap to achieving them should be created (ideally with input from all stakeholders) and shared so that all affected by the plan understand their specific role in achieving it. Enacting the plan then requires focussed management to ensure the roadmap is being followed.
8. How invoice finance can help
In challenging situations, cash flow takes on even more importance when attempting to rebuild business health. Fortunately there are products available which can help boost your working capital quickly. Invoice finance can be one solution to this problem.
A facility from FactorONE can improve cash flow by effectively bringing forward payments on invoices to inject cash into the business and ensure a reliable supply of working capital to meet the business’ requirements. Additional cash flow provides some ‘breathing space’ needed to restore customer or supplier confidence and enact the changes necessary to make a recovery.
FactorONE can approve most facilities within 24 hours of the initial application and first funding is typically available within five working days. Whether the business is a small business or large, invoice finance can provide the quick cash injection needed to provide the business the best chance of successfully trading out of difficulty.
