As a small business owner it’s likely that you will have experienced liquidity problems. In fact, more businesses fail through poor cash flow than anything else, according to statistics published by BERR. Through ensuring you have a strong balance sheet you will be able to fund day-to-day operations, and take advantage of growth opportunities when they arise.
Not Raising Too Much Money
On many occasions businesses will raise too much money. This causes problems for the following reasons:
• You will get a lesser return on the capital employed within your business, and this will damage earnings per share or make interest repayments more significant. You also, though, have to ensure you will have enough money to tide over should earnings fall or unexpected expenses come into play.
• You may try and grow the business too quickly, and fail to get the correct foundations in place to support growth.
• You may become too lax with spending, take on too many staff, and assume expenses that do not do enough for the bottom line. Remember, though, it’s also possible to cause significant harm to your small business through being unwilling to invest in its future.
Venture Capital
Raising venture capital is often one of the more popular ways for a small business to finance their operation. Often a small business will have a lack of financial history or revenue to make a bank confident about a loan. On the other hand a VC firm may be willing to assume this risk knowing there’s also the potential for much reward if things go well. A VC firm will generally be looking to invest in a business that has a disruptive idea, a strong management team or a key advantage over their competitors. You should be looking to pitch a large number of VC firms, more than 20, if you want to be able to raise money at a strong valuation. If there are firms with a focus on your sector, you should make sure you approach them.
Bank Loan
Bank loans will often be hard for a small business to get their hands on. If you are able to get a small business loan, however, this will often be a much cheaper way of raising money than through venture capital. It may be worthwhile to look at both methods, and see if you feel the valuation is fair. A VC firm will often claim to bring more to the table than just money, and this will often be true.
Personal Money
Using your own money to fund your small business can be a smart move, and is often the cheapest – but also the most risky too. You could remortgage your home, borrow against the value of your assets, or even sell your assets.
If your business is struggling for funding to fuel growth you can also choose not to pay yourself and other shareholders a dividend. That way earnings are going straight back into the business.
America's 25 million small business owners are entitled to the same turnaround help as the Fortune 500. Unfortunately, they don't receive it because turnaround consultants are expensive and their methods are not readily known by small business owners. A turnaround roadmap can remove some of the mystery about turnarounds and provide a guide for small business owners to fix their companies by themselves. Like GPS, a turnaround roadmap uses waypoints to help the user navigate from here to there. The seven major waypoints on a turnaround roadmap are listed below. If you can follow a map, you can turn your business around. STABILIZE. The first action in any crisis is to stabilize the environment so you can make good decisions.
The key to stabilizing a small business is to maintain a positive cash balance at all times. Never spend more in a week than you had at the end of the previous week. This simple cash control budget works like a tourniquet; it keeps you alive while you determine what went wrong and what to do about it. Control the cash by personally signing every check that leaves the building. Also, sign every purchase order so you don't buy anything you don't absolutely need. Prepare a cash flow budget for 13 weeks. It usually takes this long to diagnose the problems and reorganize your business. You must create enough cash to move through this phase. Persons inside and outside your business will look to you for leadership. Step up and lead by example, manage by walking around and talking with people, know your numbers and business processes, and be solution oriented. DIAGNOSE. There could be a number of reasons why your business is in trouble, but generally one of the following is the culprit: 1) sales are down, either taken by new competitors or lost to a decline in market demand caused by an economic downturn, 2) gross margins declined while fixed costs remained the same, or 3) the business has become top-heavy from an acquisition, or from adding new plant and equipment. You can quickly isolate the causes through financial analysis. Look at your company's performance ratios for the past three to five years. Next, compare your ratios to those of other companies similar to yours.
You can purchase this information from the Risk Management Association (formerly Robert Morris Associates). Study the numbers and variances. You'll see where others are doing well and you are not. Close the gaps. Once you've analyzed your company, review your industry and what's going on with your competitors. The results of this company and industry analysis will help you determine what caused your cash crisis and what you must do to fix it. Remember, the lack of cash is an effect, not a cause. As you move on the next waypoint, you begin eliminating the causes. REORGANIZE. Every sustainable business has a core division, product or service that produces positive cash flow. Rank your units in descending order by the amount of positive cash flow each produces. Draw a line where the cash flow turns negative. The products or services above the line become your new turnaround company. Everything below the line is discarded. Prove that you can stay in business while you turn things around. Be brutally honest in your assessment of how you got into this situation and how you intend to get out of it. This will help restore your credibility. You will need this to obtain concessions from your creditors. NEGOTIATE. Sort your creditors into two groups: Group A creditors (those you need to do business with in the future, like banks and critical suppliers), and Group B creditors (those you can replace and don't need to survive).
Meet with Group A creditors and sell them on your turnaround plan. Be factual and positive. Show them how they will be repaid from your successful turnaround. Most will go along with you. Don't waste time with Group B creditors. Hire a debt negotiator to obtain a settlement for you and move on. EXECUTE. Once most business owners get past the crisis and calm their creditors down, they fail to execute and the wheels come off the wagon. Don't let this happen to you. Set up a weekly agenda and stick with it religiously. Do all the tasks called for in your turnaround plan and remain accountable. Success is won or lost through execution. GROW(or Sell). If you like what you do and can you see yourself happily doing it for another three to five years, you should keep your company and grow it. You now have a profitable company and staying on course should be easier this time around. You certainly know what to avoid. If you are tired, you probably should sell this company and do something else. The good news is your company is now worth something, whereas before you turned it around, it was worth little or nothing. Manage it well while you have it on the market. Any business owner who chooses can learn how to fix his business, keep his job, and protect his home. Use a turnaround roadmap to guide you.
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Naz Daud has sinced written about articles on various topics from Real Estate, Ezines And Newsletters and Business Promotion. CityLocal’s UK directory has a for work-at-home franchisees. You could be earning your income from the lucrat. Naz Daud's top article generates over 60500 views. to your Favourites.
Kamal Kaushal has sinced written about articles on various topics from Small Business, Finances and Computers and The Internet. Did you find this article useful? For more useful tips and hints, points to ponder and keep in mind, techniques, and insights pertaining to Google Adsense, do please browse for more information at our websites.. Kamal Kaushal's top article generates over 27100 views. to your Favourites.