Running a business in an uncertain economic environment is always tough, but one of the biggest challenges is managing debt, which is critical if you want to expand. It’s essential you take the right steps at the right time.

Make the right move, on time

As a small business owner who is actively engaged in the day-to-day operations and in long term strategy, it can be tricky to see the danger signs in time, making corporate restructuring — already a major challenge — even harder. Being aware of the bigger picture of where the business stands and the way it is heading is an important ingredient in making timely moves that could get your business out of debt.

Assess your financial strength

Mounting debt can be a serious problem if not attended to quickly, especially when you consider that wrong kind of funding is one of the common reasons small businesses fail. It is important to see your business for what it is, rather than viewing it from the perspective of how you would like it to be. You have to sit back, assess your outstanding debtors and creditors and seek financial advice when you are unsure.

Read the warning signs

There is no shortage of warning signs that a business is in distress – over-leveraged finances, declining sales and turnover, and unpaid suppliers are some of the common signs of impending business failure. Ask yourself the right questions such as:

  • Is it getting harder to make debt repayments?
  • Is maintaining cash flow to meet expenses a struggle?
  • Are margins declining, eating into profitability amidst increasing competition?
  • Is the pressure to pay outstanding invoices from suppliers mounting?

Working with your financial adviser or accountant, or seeking professional advice may be the key to understanding the flashing red lights.

Assess and prioritise your debt

Having multiple creditors awaiting repayments can be daunting when you try to manage your cash flow. One way you could relieve some stress is by assessing who your creditors are, and by prioritising your debt.

You may want to identify and list your creditors, assess how much you owe and to whom, and prioritise the ones who need to be paid first, and the ones you could afford to pay. Negotiate with creditors to agree upon set timeframes, and arrange for payment plans where possible. The first place to start off with prioritising your debt may be to budget your income and expenses.

Collect your dues

It can be challenging to have your dues paid when your business is struggling. There could be many reasons why your customers and clients have not paid, including their own operational and cash flow issues.

Have a professional conversation with them to check the status of your payments, making sure you are on the same page. Reviewing the terms of your contract, following up with other client representatives, understanding dispute resolution mechanisms in your industry and taking legal action may be further steps that you could consider, depending on what the initial response to your conversation is.  

Reassess your human resources

Restructuring your business, managing your creditors, or getting your financial house in order depends on having the right people for the right tasks. Your line managers and their staff could be the ones who could help your business overcome its troubles, or they could end up being a drag on your restructuring plans and operations.

It is important to have proper systems in place to appraise the performance of your employees and the tools to identify the right fit between your business and its people. Engaging your workforce better, providing with the right mentoring and guidance, and matching the right people with the right tasks could make a difference to your business turnover, profitability, and cash flow.

In times of increasing competition, changing business environments and economic uncertainty, maintaining business operations and achieving strategic goals can be a tough task. But consulting experts can get your business back on track.