Financial distress can occur from various reasons and factors regarding a business. While factors like an economic downturn and regulation changes are unforeseen and uncontrolled; there are plenty of issues that cause distress when a company or the management fails to meet the business standards and goals. However, every financial distress is not supposed to take your business down if you are aware of how to take the right steps. Here are the top 6 common causes of financial distress and solutions to turn the situation into a successful movement.
1. Poor Financial Management and Cash Flow
Adequate financial planning and monitoring is one of the most crucial parts of a business and a lack of it can cause the demise of the organization. In order to keep your business operating, it needs to generate enough revenue to cover the expenses. Any negative input can cause negative cash flow which is a deadly situation for emerging businesses and startups.
Solution: Robust financial management practices should be implemented in business operations with regular review of financial statements along with professional advice. Improve the invoicing and collections processes while keeping a cash reserve for emergency situations.
2. High Levels of Debt
Debts are mainly two kinds, Good Debt and Bad Debt. While good debts are associated with investments that pose an increase in value over time, bad debt can strain the finances of a business and create a weigh in mind. For investments, loans that have a lower interest rate are most recommended as it does it create a financial burden.
Solution: Re-structure debt and make sure to negotiate with the creditors while focusing on reducing expenses. Many small business owners try to use their home loans for their business due to low interest but there is risk, in case the business fails to meet success.
3. Competition in the Market
A highly competitive market is also one of the major reasons behind eroding market share and profit margins.
Solution: Make sure to analyze the market with your professional team while differentiating services, and products and exploring new market segments that offer more customers.
4. Inefficiencies in Operations
Lack of efficiency in operational processes can cause increased costs and reduced productivity. It creates a financial burden on the company and obstructs it from going to its full potential.
Solution: Make sure to streamline the whole operation by investing in automation and technology. With the help of SaaS, you can keep track of and manage all kinds of operations from bookkeeping to marketing. It helps to spread the cost of the software services.
5. Lack of Strategic Planning
Lack of clear business strategy results in poor decision making and running your business without a proper strategy is a high-risk job.
Solution: Develop a strategic plan for your business along with measurable goals. Make sure to regularly review market conditions and adapt to them based on the plan. You must set some milestone for your business that helps to understand its progress.
6. Ineffective Marketing
marketing has become an integral part of every business and lack of effectiveness in a marketing plan can be disastrous. Marketing helps in customer acquisition and retention which is a benefactor for business growth and sales.
Solution: Make sure to invest in marketing agencies while improving your customer relationships and online presence in the market. Hire a professional agency that can offer you all the benefits of social media and content marketing which leads to more organic customers and an established presence among the potential competitors. They can offer you the benefits of SEO (search engine optimization).
Turning a company around is not an easy task especially when it is going through financial turmoil. It requires a combination of various strategies that are specifically tailored based on the individual needs of the business owners. Make sure to hire a professional for the service and you will get 100% satisfaction from a well-managed financial situation.
