Advice for Small Businesses in Financial Difficulty

Any period of financial uncertainty and crisis can be daunting for directors and business owners, and these financial problems are actually more common than you might think. A 2022 report by Xero found that the average UK small business faces cash flow difficulties for more than 4 months each year, with almost 23% experiencing it for more than 6 months each year. 

However, do not panic! There are a number of options available to help turnaround your business if it is faced with financial difficulty, and we’re here to run through them with you. 

Here are 5 pieces of advice for small businesses in financial difficulty:

1. Cut unnecessary expenses
2. Increase revenue
3. Strengthen relationships with existing clients
4. Consider financing options
5. Seek professional tailored advice 

1. Cut Unnecessary Expenses

The first thing you should do if your business is facing financial difficulties is to cut unnecessary costs and work on improving your cash flow. By unnecessary costs we mean those non-essential expenses that if cut, won’t significantly impact your business operations. 

Now, although this might sound a good idea, it can be tricky to know where to start when it comes to cutting costs. We recommend conducting an expenses analysis where you review all your expenses and identify and eliminate any costs that you can operate without. Look for areas where you can find more cost-effective alternatives without compromising on quality.

How to Cut Business Expenses 

Some examples of cutting business expenses include reducing overhead costs, such as downsizing your office, implementing more remote working days or renegotiating lease agreements. You may also decide to optimise your inventory management to avoid overstocking or holding excess inventory. Doing this will free up cash that might be tied up in slow-moving products.

In difficult times like these you should be constantly analysing your employees productivity levels and ensuring that your team is engaged and working efficiently. Employees can be costly to the business so it’s important they are producing the quality of work expected from them. 

Another option when facing financial difficulties is to reach out to creditors and suppliers to negotiate more favourable payment terms. This could include things like extended payment deadlines or reduced interest rates.

2. Increase Revenue 

Another obvious option when faced with financial difficulties is to increase revenue. Of course, the options for increasing revenue will differ depending on the industry and individual business itself, but here are a number of things you might want to consider.

How to Increase Business Revenue

• Offer new product lines and additional services – By adding new products or services to your existing offerings, there will be additional opportunities to diversify your income streams which will not only help to increase revenue but might also attract a broader customer base and encourage existing customers to make additional purchases.
• Increase marketing efforts – Investing more in marketing may also help increase your revenue, whether it be SEO, PPC advertising, social media marketing or email campaigns. 
• Upselling – Train your sales team to upsell higher-priced products or cross-sell related items to customers during their buying process to boost sales & revenue.
• Host events/ webinars/ workshops – Hosting training sessions related to your industry is a fantastic way to showcase your expertise, attract customers and make additional revenue. 

It’s important to note that efficient cash flow management is crucial during times of financial difficulty. Make sure to invoice promptly, encourage early payments (perhaps through incentives), and manage your inventory efficiently to avoid cash bottlenecks. 

3. Strengthen Relationships with Existing Clients

Another thing to consider is strengthening your relationship with existing customers. One of the best ways to do this is to ask for feedback so you can understand their satisfaction levels and identify where you can improve. When customers know that you value their opinions, they feel respected and are more likely to stay loyal to your business. 

It’s also crucial that you stay in touch with your clients and customers regularly. You can do this by sending updates about relevant industry news, helpful resources, or sending out updates about new products. If you’re an agency, ensure you’re providing monthly updates about your work and keeping your clients up to date with your work and be completely transparent about results. 

You might also want to consider sending out company newsletters or social media to maintain communication with existing and potential clients. 

Remember, repeat purchases can only occur from happy customers, so it’s essential that they are listened to and receive the best possible service from your business. Not only are happy customers loyal, but they also spread the word about your business to friends, family & even followers on their socials, which can be the best form of marketing out there.

4. Consider Financing Options

Another option for dealing with financial difficulty and maintaining operations could be to explore different financing options. These may include:

• Debt consolidation – If your company is burdened with a number of high-interest debts, it might be worth considering getting a debt consolidation loan which will combine them into a single, more manageable loan with lower interest rates, reducing the overall financial strain on your business.
• Revolving credit – Having access to revolving credit, like a business credit card or a business line of credit, provides a safety net during financial difficulties. You can use these credit funds as needed and only pay interest on the amount used.
• Angel investors – These are individuals who invest their personal money in startups or small businesses in exchange for equity ownership or convertible debt, and can be a super valuable source of support for businesses facing financial difficulties. 

While financing options can be beneficial to your business, you must take careful consideration to the terms, interest rates, and repayment plans. You must assess your business’s ability to meet the financial obligations associated with any financing arrangement and fully understand what you’re getting yourself into before taking on additional debts. 

5. Seek Professional Tailored Advice 

Last but certainly not least, it’s wise to seek professional tailored advice to offer insights, discuss strategies you have not yet considered and guide you through each process, whether it be financial advisors or commercial lawyers. 

How Harding Evans Can Help 

Our expert solicitors here at Harding Evans provide directors and business owners, like you, tailored advice on all issues relating to the financial difficulties you may be experiencing. And we’re not just limited to small businesses, we also work with large multinational companies, too!

Our understanding and expertise of this area of business allows us to anticipate likely issues and to help you deal with them in the right way. Whether it be a case of regulators, creditors or insolvency practitioners pursuing claims against you as a director or business owner, we can help you build a defence against such claims.  We are experts at not annoying pursuing commercial debt recovery, but helping clients defend against unwarranted claims.

Where necessary, we also provide assistance and advice during formal insolvencies, winding-down procedures and closure of businesses. Whatever you need assistance with, we’re here to help.