5 Ways Businesses Can Avoid a Financial Crisis
The US Labor of Statistics reveals that even though small businesses make an important contribution to the economy, many of them fail inevitably. Further findings related to the survival of businesses within the nation also disclose some very hard to digest results. These included data which showed that as little as 66% of new establishments survived after two years of their existence while only 44% continued to sustain their functionality after four years of their establishment. This is a clear indication, just how challenging and competitive the industries have become over the years. While companies try their level best to overcome factors like barriers to entry and getting hold of a substantial share of the market by outmaneuvering rivals, there are still other problems to deal with. One of the major reasons why businesses fail nowadays is due to suffering severe financial crises that bring their operations to a sudden halt or immediate closedown. While many professional services can offer you a complete guide on funding a business, you should be more informed first. The following are some great suggestions through which a business can effectively avoid facing a financial crisis and have smooth sailing for years to come:
- Diversify to Protect Your Cash Flows
One of the best ways to respond when your company might be steeping towards a financial crisis is to act positively and diversify your business. This might involve venturing into new markets and exploring new niches that have been kept untouched or unexploited. This will help your business to diversify income streams, and with more revenue being generated from a variety of operations, it can help your venture to sustain positive cash flows. Many businesses often deal with SBUs (small business units) for that matter, and they are categorized as cash cows, stars, dogs, and question marks. Such a cash cow can be effectively used to protect other business units while sustaining profitability for your business if your other departments are not doing well enough on their own.
- Strategic Downsizing
It should be understood that during a financial crisis, the importance of generating consistent revenues and sustaining profitability matters a lot. Hence many companies often analyze and review the performance of their various products and services to see which can be let go off entirely or receive substantial cuts to maintain profitability margins. Downsizing is one such method where a business must decide which unit needs to be closed down. With careful analysis of each unit and its operations can inform you how well they are doing in the market. The management can then decide on closing down those that are hurting them the most. Hence if a business unit is making a loss that it has no chance of recovering from, then protecting the parent company is highly essential. This makes sure that the founding company sustains itself while a subsidiary unit might be downsized in the process.
- Keeping a Stringent Check on Your Debts
Debts and your account payables can bite at your revenues bad if there is a financial crisis looming around your business. Hence the most reasonable and sensible approach would be to make sure that excessive debts are never allowed to be accumulated in the first place. You need to act in an extremely diligent and proactive manner so that you strategize and plan in a thought-provoking manner to pay back your loans as soon as they are up. This will not only help you strengthen your credit score but also save you from paying additional penalties for late payments.
- Cutting Down On Your Costs
Many businesses who have mastered the art of surviving dry spells and off seasons can tell you that reducing cost is perhaps the biggest achievement any venture could ever dream off accomplishing. For once, it is not about making profits, but making sure that you can achieve more in less. This might involve a technological breakthrough, a stupendous software to support your day to day operations, or building a strong network that connects you with better resource acquisition. Financial crises are absolute killers, and one way to considerably dampen their effect and break their impact is by reducing your business cost.
- Show Austerity When Spending
You do not have to be a miser at heart to know that business spending is naturally linked to investing in projects that offer you generous returns. Hence the ideal scenario is to make sure that whatever you spend on has a lot of surety when it comes to offering you better and higher ROIs. This will ensure that whatever you spend today is bound to get you more in return tomorrow. However, if such an opportunity is not available, then it is pretty clear that you need to let go of any spending that can be considered as an extravagance or completely undue by usual standards.
A financial crisis is not something that can happen all of a sudden. There are always signs and symptoms. This is the time where you need to be watchful of your practices and carefully seek out solutions that can help you avoid them at all costs. Moreover, you should always be more wary of your doings.