22 May Your Startup Is Running Out of Money: 8 Things to Do Now
There’s no gut-wrenching feeling like the one that comes with the realization that your business is running out of money. Bills are going unpaid, employees are starting to wonder if they’ll still have a job next month, and you’re wondering what you’ll do next.
First, take a deep breath, and keep reading. If it’s of any consolation, millions of entrepreneurs have been (or are currently) in the exact position you stand in right now. No matter how bad your situation is or how hopeless you feel, your job is to explore and carefully weigh your options, and then grind your company out of the hole you’re in. Here are eight moves you should consider making today:
Face the Facts
When faced with any tough situation in your business, the worst thing you can do is ignore it. If money is starting to get tight in your business, you still have a lot of options, but as time goes by and your situation worsens, some of those options will disappear.
In order to face the facts, you have to understand the facts and know how bad your current problem is. Focus on your balance sheet and cash flow statement, calculate what your long and short-term needs are in terms of reducing expenses (lower your burn rate) and increasing the cash that’s coming into the business. You can use this information to take an aggressive approach to fixing this problem, permanently.
When your business is running out of money and you need to stop the bleeding, cut costs. There are many ways to cut costs, from canceling subscriptions to considering taking a pay cut.
For a full breakdown of costs you can cut, read Emergency Cost-Cutting: 7 Ways to Save Money in Your Startup Immediately.
When is the last time you analyzed your prices? If it’s been awhile, raise your rates to reflect the value you provide to your customers. To limit the negative impact raising your rates can have on your customers and their loyalty to your business, give them notice ahead of time and be cautious not to overcharge. If your change is too drastic, customers will look to your competitors for a cheaper option. Price increases should be gradual instead of a large and sudden jump.
Change Payment Schedule
Just because your startup is running out of money doesn’t always mean you’re going broke. In my experience working with businesses in healthcare and construction, several very strong and profitable companies have nearly failed because money was coming in much slower than it was leaving.
Reevaluate your payment schedules and the terms you give your clients and vendors. Instead of allowing companies to pay you for your products or services 90 days after you’ve provided them (Net 90), consider requiring payment in 30 or even 15 days. Shortening the turnaround from when you deliver services or products to the time you get paid will drastically improve your cash flow and help make sure you have cash on hand to pay bills and employees on time.
Focus on Quick Wins
One of the biggest mistakes you can make when getting low on cash is concentrating all of your time on a major sale or large influx in cash. The problem with this strategy is that it’s do or die. It’s like only going for an A or an F on a test instead of carefully working to get your score up .
While cutting costs, search for easy and recurring sales to increase revenue and to reduce your company’s burn rate. Making immediate changes will help give you additional options later on. If you bet everything on a big sale or a single investor and lose that bet, you put yourself and your company in a terrible position.
Having control and as large of an equity stake in your company as possible is extremely important, but having full control of a closed business is worth nothing. Consider taking on an investor to get your business cash positive.
Before seeking an investment in an emergency situation, keep in mind that investors want to make safe bets. VC’s and angel investors who put their money in companies that are struggling to maintain a positive cash flow are likely looking for both significant long-term potential and a steep discount.
Tap into Personal Funds
How passionate and confident are you in your business? If this is what you want to do with your life and all signs point to your business being able to overcome this short downturn, you may want to consider putting your personal money into your business.
Warning: Don’t ever put your personal assets at risk without a financial plan in place. No amount of money can fix a bad business model or lack of financial planning. Before you put more at risk by putting your personal assets and savings up to save your business, carefully plan for how your business will grow and recoup this investment.
Sell It All
Selling out of desperation is never ideal. However, it gives you a chance at a clean start. If you don’t have any other options left, explore selling your business to a competitor, investor, or fellow entrepreneur.
Selling a business is a complicated process that will take time, so keep in mind that you still may need to keep your business moving for months after getting serious interest in a sale. While it’s still a risk, if a personal loan, assuming an SBA or small business loan is no longer an option, will keep the doors open long enough to sell, it’s an option worth exploring.
Let’s talk to get your business back on the path to your goals. Contact me today to get started.