How to Save a Failing Business

It’s the fact no business owner wants to admit – times are tough. Any entrepreneur that has been in business long enough has been through a rough patch where their company’s existence was on the line.

You don’t want to admit this to anyone you know and trust us – we get it. We’ve been there. We see you and we know what you’re going through.

You’re gonna get through this. Here’s how.

First Step – Figure Out Your Runway

Let’s say you’re bringing in $15,000 a month in revenue – but your costs are $21,000 a month. And you have $30,000 cash in the company checking account.

That would mean you have five month’s runway until you’re at $0 (you’re at a $6,000 a month loss which means your cash-on-hand will be at zero in five months).

The name of the game is to make sure that the runway stays as far out as possible.

Second Step – Get Accounts Receivable to $0

Find any way to get money sitting in receivables out of there and into your checking account. Call delinquent accounts and say you’re going to send someone over to pick up the check. Point out that the bill is way past due and that the contract has an attorney’s fees provision so they’ll have to pay for your attorney if it comes to that (it’s much cheaper just to pay your bill).

Do what it takes to get cash in. If you get $12,000 in receivables to come in – guess what? You just added two month’s of runway. Congrats – seriously. No one will give you accolades for that, but you just did something herculean.

Third Step – Tweaks to Boost Cash Flow

Map out your expenses and stretch them out to the last day before there’s a penalty. Set your credit cards to have the minimum payment automatically deducted on the due date and then worry about paying it off when things aren’t so tight (ideally this isn’t a forever situation as credit card balances suck up cash flow). Do everything to make sure payroll and IRS payments go smoothly every month.

Stretching the time on each bill until it gets paid by 5% will add one and a half to two days to the month – reducing your monthly outflows by $1,050 a month. With the increased cash balance from step 2, you now have 8.5 months of runway.

Fourth Step – Cutting the Fat (versus Cutting to the Bone)

The next step is to cut anything unnecessary. If you were trying out a new software that was supposed to be a productivity hack, now’s not the time – reduce your expenses by $200 a month instead. If you moved your car payments (and insurance) to the company so you could qualify for a better mortgage, now’s the time to retitle them in your name (obviously – talk to your accountant before doing so. In fact, your accountant is the person you really should talk to about this. They know what’s going on if they see your books and they will have invaluable advice. And trust us – they’ve seen worse) – there’s another $700 a month in reduced expenses. Your monthly deficit is down from $6,000 a month to $4,050 a month and your cash-on-hand is up to $42,000 – so now you have 10.4 months of runway.

The goal here is penny pinching – but don’t be penny-wise but pound foolish. Don’t cut staff that you need – that’s a last resort which will take a lot of time to rebuild once you’re on the other side of this. Go through your P&Ls and look for things that don’t aren’t part of the core functioning of your business (ie those networking lunches at steakhouses have to go).

By stretching out the time invoices sit in your accounts payable (again – don’t skimp on your subs if you use subs. Treat them like your staff) and getting rid of non-essential items on your P&Ls, ideally you’ve shrunk your negative cash flow to a small enough amount that the cash on your balance sheet can cover you for a few extra months.

Fifth Step – Grow Your Top Line

Now you have over 10 months of time to get out of this situation. Spend the next three months with an intense focus on growing. Ask for referrals from your clients. Double down on your email marketing campaign. Go to every networking event you can find. Take every meeting. Cold call potential customers. Do it all.

If you still have negative cash flow after three months of an intense focus on selling, go through the steps again – clear out your receivables, cut costs, stretch out invoices and buy some more time. Then hit the streets and sell like crazy again.

You’re going to get through this and your business will be better for it on the other side. You’re going to be lean and in a growth mode – you’re going to look back at this moment five years from now as the moment your business made it and became a real breathing entity. Trust us and go get it done.