Facing Business Challenges? Recover In 3 Steps!
Whether you’re a new entrepreneur or the leader of a Fortune 500 company, doing business today presents universal business challenges. Managing the complications globalization, increasing regulation, new technology, a fast-moving economy and now a pandemic all require precision and expertise.
If you’ve lost your balance and find your organization in trouble, it doesn’t mean the show’s over.
You can use these three steps to begin your recovery.
Protect Your Cash – Prepare a cash flow forecast to determine how quickly your cash reserves are being depleted. Cash reserves include the money you have in the bank and amount of immediate credit you have through loans or other credit options. If you don’t have enough cash reserves to fund your business for at least 3 months start a cash conservation plan. Work to cut cash expenses, conserve working capital by improving accounts receivable and inventory turns while having suppliers to extend their payment terms.
Answering these questions will help you determine if you have a cash reserve problem. How much cash do you have in the bank? How much cash can you access through funding lines? Do you have enough to pay employees, rent, and suppliers? What is your cash burn rate?
Identify the Problem – Typically, the problem will come down to these four areas:
- Sales levels - Are they down? If so, why?
- Sales margins - Are they wide enough to cover costs?
- Production - Can our production capabilities still meet demand
- General expenses - Are there costs that could be reduced or eliminated altogether?
Conduct a financial analysis to get a clear and complete picture of your situation. The Focus Matrix is one tool that helps companies grasp the critical elements of their forecast. For instance, in a low margin high fixed cost business volume is main driver of profitability and would be a critical component of a forecast. Conversely, in a wide margin high variable cost business monitoring the sales pipeline may be the key to effective forecasting. (contact us to learn more about the Focus Matrix)
Regain Control – Once you’ve identified the cause of the problem, determine whether solving it is within your control. If it is, your solution should include a timeline and a financial plan to help you stay on target. If the solution is beyond your control your solutions are limited to retooling, selling or closing the activity.
Coming out of a financial crisis is always stressful and never easy. Sometimes you can tackle the task on your own, but depending on the severity, a professional may be required to bring things back online. If that’s the case, an expert can help in a number of ways. Don’t overlook your own staff when searching for the right advisor, but make sure the expert you choose has the skills to deliver what you need.
Every company will experience a loss of balance at some point. The important thing is to get a handle on the situation as quickly as possible and to enlist help from the experts, both internal and external, that provide you with the most value. With the right moves, you can recover and come out on top, perhaps even stronger than before.
Identify your path to CFO success by taking our CFO Readiness Assessmentᵀᴹ.
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