How you can turn your company from the brink of bankruptcy to a business success

Running a business is exciting, but making it a success isn’t easy.

Statistics show that 20% of companies fail in the first year alone, while a huge 70% will be gone within 10 years. The reasons behind these failures are many and varied, ranging from lack of market interest to internal disagreements over strategy or execution. But perhaps the most common reason is because a business is struggling with its finances—and this leads to tens of thousands of companies around the world declaring bankruptcy every year.

Here are five ways to turn things around if you’re in trouble.

1: Get your cash flow in order

Back in 2013, Chief Executive Officer of Dubai SME, Abdul Baset Al Janahi, stated that for small and mid-sized businesses: ‘Financial support is the major stumbling block.’

But also because previous studies have shown that 82% of businesses eventually fail due to cash flow problems. So in order to survive (let alone thrive) you need to better manage and protect your finances to ensure that your outgoings are not overwhelming your income. Do this and you’re creating a blueprint that will not only save your business but will see it grow in the future.

Do this and you’re creating a blueprint that will not only save your business but will see it grow in future.

Steps you can take: Getting your cash flow in order can be as simple as making sure you have expert accounting help on hand (something which many startups and SMEs ignore). Building this into your budget from the beginning is useful, but don’t hesitate to seek help later on. Either way, you will need to be ruthless in trimming down your expenses to the bare minimum you need to operate. Identify areas where you can immediately cut non-essential costs that don’t directly contribute to your ROI (like subscriptions and memberships). Then look at those areas where you can reduce costs for more essential outgoings (such as swapping the latest purchased technology for cheaper, second-hand alternatives; minimising travel or living expenses; or hiring remote-working freelancers to save on office/equipment overheads and paying for benefits).

2: Sell what assets you can afford to lose

This is directly tied in with sorting out your cash flow, because relying on being asset or client rich only increases your chances of getting in over your head. Why? Because your business needs actual money to run. Owning your own office building, furniture and/or technology can lull any company into a false sense of security that things are good and that financial woes might be ‘just temporary’, but this is a dangerous line of thinking. Being asset rich might look great on paper, but it can’t pay for utilities or food or clothing or any other necessities to keep your company alive and avoiding bankruptcy.

AssetsSteps you can take: Take stock of all your assets (both business and personal) to see where you can free up some money. Companies who have purchased their own office furniture and the latest computer equipment could consider selling some or all of these assets and exploring buying cheaper, second-hand equipment instead. Or, failing that, they could move to a more cost-effective leasing option. Scouring your personal inventories will also undoubtedly turn up some ‘luxury’ items that you don’t need, and which could make you a little money to help pour back into the business—buying you a chance to turn things around.

3: Triage your payments and consolidate into one loan if you can

In our article on debt management for startups, we talked in detail about how overwhelming it can be when your debt is spread between a variety of sources. Aside from the pressure of facing multiple requests (and eventually threats) over money owed—not to mention the penalties you could be hit with—it’s also difficult to know who to pay first. Thankfully there are ways to deal with this and get yourself into a much better position from which to save the business and take it to the next level.

Steps you can take: Consider what is keeping your business alive and assign the highest priority to making these payments above all others. Things like utilities are essential, because without electricity and light you simply won’t be able to work, and without AC/heating and water you can’t live. Triaging your payments will help keep the basics running, while you dig yourself out of the hole. Alternatively, you could investigate consolidating all your debts into one place. This will have the added bonus of reducing the number of repayments to one, making it far easier to keep tabs on your financial situation.

4: Renegotiating contracts with vendors or suppliers

When companies enter into an agreement for a product or service, they will have signed on the basis they have understood the terms and conditions and can meet them. But too often we see businesses fail to consider the future, especially how they’d cope if circumstances change. Which often leads to monumental pressure and breakdowns in relationships if things go wrong and the company in question is left struggling to do what they promised, digging themselves deeper into debt, and facing potential bankruptcy. Having a deal that all parties are happy with is essential to your success, so it’s always worth seeing if you can change a pre-agreed deal if it’s no longer working for you.

Having a deal that all parties are happy with is essential to your success, so it’s always worth seeing if you can change a pre-agreed deal if it’s no longer working for you.

Steps you can take: While a signed contract might seem watertight, the fact is that a lot of companies have renegotiated agreed deals as circumstances change. If you find yourself struggling, feel free to approach your vendors and suppliers to investigate whether they’d be open to renegotiating. Chances are, if they’ve been happy with your business so far, you will find them willing to talk about minor adjustments in order to keep working with you. There might be some payment for legal advice in the case of larger, more complicated contracts, but it could be worth it if you end up getting a revised deal that takes the pressure off your business. Limiting contracts to a year could be useful too, as it will give you a regular chance to reassess and renegotiate deals. Meanwhile, you should also take the opportunity to look at smaller contracts you might have with service providers (such as for mobile and broadband) and talk to them about a more cost-effective offer. If they can’t manage it, find a different supplier who can give you the price you need.

5: Revising your business plan and budget

Recent studies in the UK have revealed that quite a few SMEs are jumping into business without knowing what they’re doing—with some 26% having no business plan and 9% of startups having no set budget. And even those operating with one (or both) might well have only put together a cursory attempt without really thinking things through, because, as another survey from the UK showed, 1 in 10 SME leaders admitted they didn’t even know how to put a business plan together.

Business plan

Make no mistake, a solid plan and budget are the basic foundations upon which any successful business is built, because they offer clarity about the company’s destination and how it plans to get there. Get either of these wrong (or don’t do them at all) and you’ll end up running yourself in circles and falling deeper into debt. But get them right and you’ll be paving the way to fortune and glory.

Steps you can take: Take a good look at your business plan and analyse it to see where it could be improved. Have you understood your market correctly? Are you targeting the right audience in the right places? Is your pricing model accurate or have external fluctuations meant it’s no longer working? Identify any issues and correct them, then make sure you revisit the plan regularly to make sure it will keep you working at an optimal level. Adjusting your budget is equally important, because it will allow you to oversee and control your spending. Not only stopping you from getting further into debt, but allowing you to pay off what you owe as your business grows more successful.

It’s not too late to save your business and turn it around

Nearly all businesses struggle with debt at some stage. It might come in those all-important first 5 years before you see a profit. It could come later through changing market conditions, increased competition, or even significant and rapid growth beyond what you’ve planned for. The trick is to remain calm and know that there are options available to you to pull your business from the brink of bankruptcy. Whether you choose to sell those assets, adjust the budget, or consolidate your loans (or all of the above), a little smart thinking will allow you to get control over your cash flow again and see you make a success of your business yet.

Setting up your own business has never been easier. Virtuzone takes care of it all so you can focus on what matters – building your business. For more information about company formation in the UAE mainland or free zones, please call us on +971 4 457 8200, send an email to info@vz.ae, or click here.

About the Author: Neil Petch, Chairman at Virtugroup
About the Author: Neil Petch, Chairman at Virtugroup

With a history of business successes, Neil Petch is well known in the UAE and beyond as a visionary entrepreneur with a passion for helping others establish and grow their own businesses. Neil founded Virtuzone in 2009 and quickly established it as the region’s leading company formation expert, before launching Virtugroup, a holding company that has a wider mandate of supporting startups from establishment; to successful market entry; and all the way through to exit.