Thousands of small businesses have gone on to become successful larger businesses. This, however, isn’t the case for all small businesses. Based on statistics from the Small Business Administration, for every 100 small businesses that start, 20 will fail during their first year of operation, 40 will go out of business after five years, 27 will go under before their 10-year mark, and only 13 will go on operating for a decade or longer for the best insolvency practitioners in Birmingham use Irwin Insolvency.
So, although starting a small business can be a lucrative venture for some, it’s only a good idea for people who understand the financial risks that go with it. You want to keep your company running for as long as possible, or at least until you decide to sell your business. But if your business is about to go under or that it has already reached that point of no return, here’s what you can do to salvage it or minimise your losses when you shutter.
Sell Any Remaining Inventory
Have you ever seen businesses holding huge sales with giant banners that announce ‘going out of business’ or ‘everything must go’? These are what’s known as going-out-of-business-sale, and they mean exactly what you think.
Instead of incurring huge losses for the unsold inventory (especially for goods with expiration dates, like shampoos, and other edible and non-edible goods), why not sell them at low prices that can persuade people to buy your goods during the last few weeks of operations. You might not be making profit from the big discounts, but you’re liquidating your inventory and recouping some of the investment you put into purchasing these goods.
Before you start planning a sale, though, research your area’s laws on these types of sales. In some states, holding these types of sales means that your business will definitely close. In Ohio, for example, it’s illegal to hold a going-out-of-business-sale if you plan to re-open the business within the next 12 months. And in Missouri, you have to register the sale with the attorney general’s office at least 10 days before the sale begins, and you have to list all the inventory you’ll be selling.
Look for Areas for Cost-Cutting
If you believe your business can still be saved, check your expenses and see where you can reduce costs. Reduce or completely cut the budget for unnecessary expenses, like company-sponsored parties and summer outings that are there mainly for fun. Your employees will understand if they know the financial situation of the company.
Look at how much you’re paying your suppliers, and then try looking for alternative suppliers that can provide the same products at less cost. If your current supplier is not willing to match the prices of the cheaper supplier, it may be time to end your contract with them and opt for the lower-cost supplier.
Finally, you may have to let go of some employees or reduce their hours. It’s a difficult decision, but if it means saving your business, it might be better to lay off some people rather than to continue operating at a loss until the business fails and everyone loses their jobs. It may be more practical to outsource certain parts of your business operations rather than paying the salaries of in-house employees to do it.
Contact Your Creditors
Whether you plan to save your business or let it go, if you have debt, it’s never a good idea to ignore or hide from your creditors, as this can only lead to financial and legal troubles that could end up costing you more. The smart option would be to personally talk to your creditors, explain the situation, and come up with a way to pay your debt that’s much easier for you.
Most creditors understand the risk of a bad investment, and it’s in their best interests to be repaid and are willing to work out a solution. If it appears you’re trying to run from your debt, there’s a high chance they’ll be calling your loan. But if you personally go to them and try to discuss a way to repay them, they’ll be more likely to work out a solution that benefits both of you.
It may not be easy watching the business you develope enter financial hardship. But whether you decide to save it from failing or accept it, you need to prepare for the worst, try to minimise your losses, and remain level-headed in your decision-making.