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Managing Financial Difficulties

Financial Difficulties in Business

When any business has financial difficulties, there are three things that should always be looked at closely:

  •     Financial Services
  •     Spending
  •     How payments are collected
  •     Financial Sources

Financial Services

Most businesses use banking services, and usually credit card processing facilities. The world is constantly changing though, and new options for financial services keep emerging, so it is important to remain constantly aware of changes happening in the world of finance. Some utilise other electronic payment services such as Paypal or Moneybookers.  Some will use financial advisors, accountants, bookkeepers, tax agents, loan brokers, or other services as well. The financial services industry is large, diverse and does contribute in a positive way to helping businesses track, process and manage money in a world that can be complicated.

However, these services all make charges to businesses that use them, and these businesses in themselves have financial costs.

When a business has financial difficulties, it may sometimes be caused by excessive and sometimes unnecessary costs in the financial services they have set up.

Significant cost savings can sometimes be made by reviewing and reorganising financial services, or perhaps changing financial services providers.

Many providers in this sector are highly competitive with each other. You may be able to renegotiate loans with an existing bank or move to a different bank to reduce the interest rates that are being paid, or you might be able to spread the repayment of a loan over a longer period of time to reduce current monthly payments. It may cost slightly more in the long run, but in the short term it could make your business viable once more.

Some banks require large security deposits in order to provide you with credit card facilities. It may be possible to move to a different bank or another system, such as Paypal, in order to reduce the security deposit required, or to even reduce service charges applied when processing credit cards.


It is always prudent to routinely review spending on staff, supplies, rent and any other outgoings. Identify and eliminate waste.

  •     Are you renting an office that is bigger than you need?
  •     Do you need an office at all? Could you work from home?
  •     Are you buying supplies (e.g. stationary, raw products, fuel, sales stock) well in advance of when it is needed? Some businesses may purchase things today that might not get used for 6 months. This means cash is being spent before it needs to be spent; and more space in the workplace is being given over to storage than what is necessary (this may mean a larger work space is required than what is really needed).
  •     Can you buy in bulk? You may find that you can purchase 1000 items of a particular product cheaper than 100 items of the same product? This can be more cost effective and increase your profit margins. But be wary if it could take a long time to sell all of those products.
  •     Do you have too many staff?  Are you paying them too much? Could you cut down on staffing costs? For example, could you use freelance consultants for some roles, such as web design? A freelancer may charge a higher hourly rate than a paid staff member, BUT you do not have to pay them sick pay or holiday pay or other staffing benefits. Would you be better off having a few staff members who are really good at what they do rather than many staff who are less skilled?  
  •     Do you spend too much money socialising? For example, Bill took his staff to the pub on a Friday night after work to reward them for the hard work that week. Whatever time he got there, all his staff would be outside waiting for him to get the first drink. He often bought most of the drinks for the night. This could sometimes cost him quite a lot of money.  Other staff members hardly ever offered to buy a drink. Finally Bill realised that whilst it was nice to socialise in this way, it was costing him a lot of money. He decided to stop doing this each week and cut it down to once a month. He thought of other ways to reward his staff for their hard work, such as buying cakes or biscuits on a Friday.


Consider how your customers are paying for goods and services. Some businesses offer credit to their customers as a normal policy. Others ask for payment upon supply of goods or services; and some may ask for part or full payment in advance of supply. Businesses that are paid sooner are less likely to risk having cash flow problems.


  •     Changing terms of trade to require payments to be made sooner by clients.
  •     Introducing penalty fees for late payment of accounts.
  •     Withdrawing services from customers who are not making reliable payments
  •     Being quick and efficient in your credit control.
  •     Using a debt collecting service.
  •     Providing positive incentives for on time or advance payments (e.g. 5% discount if paid on delivery).

Financial Sources

Some businesses can be revived with an injection of cash; but others cannot. If your business has strong potential to grow; it may be a wise decision to inject more money into it, to revive and boost it to the next level. If however, the cash problems are being caused by some issue out of your control (eg. aggressive, cashed up competition, a major downturn in the economy); a better response to a shortage of cash may be to consolidate your strengths and eliminate weaknesses. That may mean reducing spending. Sometimes reducing spending in the short term while you reinvent and refocus, can be the best way to grow a business in the long term.

How to Borrow Money and Get the Best Deal

If you are struggling financially, the first and most obvious solution may be to consider borrowing money. This can increase liquidity fast, but long term there is a price to pay. It is as a way to invest in your business and restart it.  If you do consider this option, then you need to look at the best way to borrow money.

If you think it may be a short term thing, then an overdraft may be a good answer.

Other options are business loans or credit cards.

Whichever option you choose, it is important to be sure that it is the best option for you.

  •     Look at the interest rates.
  •     Check the bank charges.
  •     What happens if you are late paying?
  •     Are there any hidden costs?  

Alternative Financial Sources

Creative managers can always find new ways of getting a cash injection. Consider marketing initiatives such as a "stock clearing sale"; "crowd funding" for specific projects, or selling off some of the business assets,.

Other ways may be to sell an interest in your business; lease the operation of part of your business, turn it into a franchise operation or to sell the business and start anew.

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