The debt crisis currently facing our federal government has drawn many headlines in recent weeks—most notably with the recent failure of the congressional "super committee," which was supposed to come up with trillions of dollars in deficit reduction over the next decade. Of course, their efforts have proven fruitless—and there is more uncertainty than ever about our government’s ability to balance the budget and keep debt under control.
Now, it’s important to recognize that the federal government has the ability to borrow vast sums of money—in fact, the national debt is currently more than $15 trillion. Your small business, on the other hand, has much more limited access to capital. And unlike large corporations, you’re unlikely to qualify for a bailout should you need it! So what can you, as a small business owner, do to avoid facing a cash crunch?
1) Don’t wait until it’s too late to start raising capital. It’s a common and understandable mistake—after all, raising capital is rarely simple or enjoyable. But it’s important to recognize that, whether it’s a bank loan or private investors, capital is much harder to come by when you need it. It’s ironic, but true—banks and investors are happy to give you money, as long as you can show them that you don’t really need it. Raise capital when times are good, so that you’ll have reserves to fall back on as you go through difficult phases.
2) Take control of your cash flow. Cash flow struggles can be the undoing of many businesses, particularly if they are undercapitalized. In many cases, overcoming cash flow challenges may require changes to your business model—but in many more, it’s a matter of organization. Organize your Accounts Payable and Accounts Receivable and follow up immediately with delinquent customers. Negotiate terms with vendors that allow you to keep cash in your bank account for as long as possible.
3) Don’t fear bankruptcy as a last resort—you may be able to restructure your business and emerge stronger than ever. "Bankruptcy" is a scary word for business owners, but in many cases the process can actually allow a business to wipe away debts and reemerge as a profitable entity. As a San Antonio Business Bankruptcy Attorney, I have helped a number of clients through this process—and many of them are doing better than ever! Contact me today to learn more.
As a small business owner, you can’t afford to emulate the financial habits of our federal government. Don’t drown yourself in debt—take control and act decisively.
[Image: Flickr user gothick_matt]