Companies in a financial crisis should seek the assistance of an accountant, who should have been advising them all along about financial health and to avoid bankruptcy. Recommendations for companies in financial trouble are as follows:
1. Diversify your venture enough so that you don't depend upon only one customer or industry. You should not derive more than 15% of your business from any one client. It can be appealing to grow quickly by being a large supplier to a small amount of customers; however, this can make your operations vulnerable to pressure from those same customers.
2. Always keep low overhead and costs in check. Many companies have high expenses when times are good, but can't cut back when business is light. Always evaluate your need for every purchase, and realize that there will be good times and slow times, so balance is the key.
3. Save a cushion of cash equivalent to a couple of months' overhead expenses. If you cannot do so, the problem can escalate and create more borrowing and accounts payable which increases debt.
4. Consider relocating your business to cut your expenses. Even if you aren't in a financial crisis, it makes no sense to stay in a location that drains your resources.
Some other good advice is to focus on sales, reduce your costs, change pricing, and develop a strategic plan. You must tackle any problems that come up as soon as possible to keep your business intact and operating in the long term.
Copyright Jeanine Pfeiffer
Every business is not always healthy. Seeing the signs of an unhealthy business are sometimes difficult for a small business owner. Some of the signs are listed below:
1. The primary sign that a company may be in trouble are poor financial reporting and lack of a strategic plan. Does your business keep large boxes stuffed with receipts, vendor invoices or other financial reporting source documents? If so, your business health is suffering and worse financial problems may lie ahead.
2. Another sign that a company may be in poor health is being dependent on borrowed funds and doing a poor job of financial forecasting. Of course, no business can be completely prepared for the future expenditures and sales that come up, not having any idea as to what could happen financially month to month is asking for trouble.
It doesn't matter how many years you have been in business, planning is not just required during the startup phase. You have to have a forseeable projection of where your company is going in the next 12 months. Unfortunately, 90% of businesses don't plan and don't have a 12 month budget. Managing a budget doesn't mean looking at what is in your bank account each week.
3. Another danger signal to potential problems is overburdened management. When management is overburdened, they tend to overlook the importance of keeping their financial records in shape or look at long term planning strategies.
As a small business owner, it is imperative to ask for help from an accountant in times such as these to keep their financial records stable and allow them to plan their company's future. It can require a lot of work from the client but it is time well spent to clean up records.
Copyright Jeanine Pfeiffer