Running a business successfully requires a lot of patience, hard work, and quite simply – luck. This is particularly true when it comes to financial emergencies. The unpredictability of an emergency can make it difficult for businesses to survive. However, if you know how to handle a business financial emergency efficiently, you can increase the chances of making through unscathed.
Here’s a guide to help you handle your business’s next financial emergency.
Take a Deep Breath
The first step in handling a financial emergency in your business is to take a deep breath and recognize that financial hurdles are a part of running a company. Financial issues are a common occurrence in every business – no matter how big or small.
During its early years, FedEx was on the brink of going out of business because of the rising fuel costs. The company’s founder, Frederick Smith, went to Vegas and turned the company’s last $5,000 into $27,000 playing blackjack. They ultimately raised another $11 million in funding and have found financial stability since, but there were certainly dire times.
Unfortunately, not all businesses can have the luck and funding of FedEx. But, regardless of your size, it’s important to recognize that you are not alone, and there is often a solution.
Assess the Situation
Financial emergencies often require making a quick decision. However, it’s critical that you don’t simply take the first solution you find. The best business owners are the ones who can assess every situation, even dire ones, and use the information collected to make the most educated decision.
To make the best choice, you need to do your due diligence when assessing the situation.
There are many considerations and questions to answer during a financial emergency, but the most important issue to address is the cause of the problem. Find the crux of the emergency and you’ll be able to make a decision that can resolve the issue and prevent its likelihood of happening again.
In the FedEx example above, the elevated gas prices were causing delivery expenses to rise, eating into the company’s profit margin. While FedEx cannot control fuel costs, it can make decisions to decrease the effects of volatile fuel prices in the future.
Financial emergencies often require similar solutions – more money. However, the underlying causes of emergencies can vary drastically. By taking time to assess the situation, you can discover the actual cause and find strategic solutions that mitigate the impact of similar emergencies.
Find Short-Term Solutions
After you’ve assessed the problem and discovered the cause, you’ll need to start creating a plan to get your company financially stable again. To start, you need to create a short-term financial strategy to free up funds. There are two basic ways to approach short-term solutions.
First, you can evaluate and prioritize your expenses to find opportunities to decrease liabilities. Every business has fixed and variable costs that they incur every month. While you should always be diligent with your expenses, it’s especially important during a financial emergency.
Look for unnecessary expenses that you can eliminate or delay. By prioritizing your liabilities, you’ll likely discover some areas to free up extra cash to cover your more pressing needs.
Secondly, you can cover the extra expenses using various financial solutions. During a financial emergency, most businesses resort to their cash reserves first. Cash is one of the most important resources for any business, as cash flow issues are the reason 82 percent of small businesses fail. If you have enough cash on hand to cover the emergency without rendering your business inoperable, it’s certainly a viable solution – if you can’t, there are still plenty of other immediate options.
Depending on the severity of the emergency, you can use a short-term financing option like a small business credit card. Credit cards are easy for businesses to acquire, and they offer several perks outside of an immediate financial solution. If you need a larger amount of money, you can look at taking out a business loan or a line of credit. With these two options, it’s important to understand the repayment terms – especially the interest rates.
Find Long-Term Solutions
Short-term solutions can help you get your head above water, but they don’t always resolve the main issues that caused the emergency in the first place. This reality is why it’s important for you to find strategic solutions that address the crux of the problem.
For example, many financial emergencies are caused by issues outside a company’s control. While you may not be able to predict a hurricane or economic downturn, you can set money aside in an emergency fund to use for these unpredictable circumstances. Planning for financial flux is an excellent long-term strategy to help mitigate the effect of future emergencies.
Additionally, businesses need to be willing to make tough internal decisions when they discover that the cause of financial distress is an internal factor. For instance, the Boeing Company is facing immense pressure because of a second deadly crash within five months of its popular 737 Max 8 plane. The stock has fallen more than 5 percent, roughly $13 billion, and countries like China, Indonesia, and Ethiopia have grounded future flights of that model aircraft.
Boeing is now tasked with finding a solution that will prevent future crashes and regain its market share. The company believes the issue is related to software and training, but it will certainly need time to research and address the issue in a more thorough manner.
As a business owner, it’s your responsibility to make decisions with the future of your company in mind – not just the immediate needs. As such, during a financial emergency, you must implement a solution that is in the best interest of your company’s long-term viability. This could be something as simple as creating an emergency fund or more drastic decisions such as pivoting your business or eliminating staff.
Don’t Be Afraid
Financial emergencies are a part of running a business. From the most successful entrepreneurs in the world to the mom-and-pop small business owners, there will always be financial bumps in the road. The next time you face a financial emergency, remember to take a deep breath, assess the situation, and find short-term and long-term solutions.
Christine Soeun Choi is a digital marketing associate at Fit Small Business. Currently based in NYC, she has a background in business studies and math with a passion for business development. Outside of work, Christine enjoys taking photos, exploring artwork, and traveling.