Most business people go through setbacks from time to time, but this can be crippling for a small business. So, what can they do to recover from a financial crisis?
Firstly, face the problem. Acknowledge that there is a serious issue and address it as the number one priority. This can be difficult. It can feel like you or your business is a failure, which can be hard to accept. However, the quicker you put your pride in your pocket, the sooner the problem can be dealt with.
Hubris has caused many businesses to fail: there is no space for your ego if you want a good chance of a positive outcome. Admit that there is a problem and deal with it as soon as possible. If you don’t, your pride will suffer a far worse fate when the business does ultimately fail.
Next, don’t compromise on quality. Keep all essential services to clients up and running. (Note that this is not the same thing as managing the business.) Do everything possible to ensure that at least your service to clients does not decline. If your service falters, you risk losing your existing clients and if your business is already in trouble, a shrinking client base may ensure its demise.
Be encouraged: you’re in good company. There are few successful business owners who have not had at least one serious setback – and many have had numerous setbacks. Success means getting up one time more than you fall down.
The next suggestion is somewhat obvious: cut non-essentials. Eliminate anything that does not relate to core functions. Non-essentials drain resources – cash resources, time and effort (focus). Be clear as to what are “needs” and what are “wants” – and remember that one’s ego and desire for comfort do not help with this point.
At the same time, hang on to essentials. Don’t become too enthusiastic when cutting back. Don’t eliminate the tools and resources that are key for the business to function and to provide quality service to clients.
Find out what went wrong. Setbacks are wonderfully rich learning opportunities. Once the boat has stopped rocking wildly, spend time reflecting on what led to this point and what should have been done to prevent it. Make sure that you then put in place the necessary tools, processes and resources as you rebuild the business.
Have proper accounting and administrative systems in place. Even if a business is small, cash flow management is essential. The money spent on a good bookkeeper or accountant to maintain proper control of the finances cannot be underestimated.
Manage cash flow as if the business’s life depends on it (because it does). Cash flow is oxygen for a business; it cannot survive without it. The well-known saying, “Turnover is vanity, profit is sanity, cash is reality” rings true.
Hire the right people and have proper employment contracts in place. There are organisations that provide labour law consulting services to small businesses for a monthly fee. They help with such things as the drafting of employment contracts, offering advice when disputes arise, and so on. It is well worth considering this type of service.
Next, look for great partners to accelerate your plans. In many industries there are organisations that can provide small businesses with support, mentorship and resources, while the business remains independent. Lean on your local business chamber. Many chambers have mentorship programmes staffed by retired captains of industry who are in the “give-back” phase of their lives and are now available to coach and advise entrepreneurs at very reasonable rates.
Focus on your sphere of influence and what you can control. Concentrate on those areas where you can improve the situation. For example, if there is something you could say to someone that might influence their thinking in a way that would positively impact the outcome, then have that critical conversation. Don’t keep quiet and complain that there is nothing you can do: you have control over whether or not you will start the conversation.
Look at what you can’t control or influence that still affects you. You can’t control the weather but you can adjust the sails of your boat to move out of the path of the storm, or put down anchor and fasten your boat to the jetty. In other words, you can take action that helps the business cope best with the prevailing circumstances. You may not be able to control legislation or influence the market that your business operates in, but they too affect your business and you may be able to mitigate their negative effects.
When faced with challenging times, assess the situation and take whatever measures are necessary to timeously set the business on a recovery path.
Paul Leonard is Citadel’s regional head: Eastern Cape.