How to Handle a Small Business Financial Emergency

Offices are designed to operate under ideal conditions. If an unexpected bill arrives or cash flow suddenly dries up, it throws the business into crisis mode. Everything becomes subordinate to keeping the business afloat, including the atmosphere employees are used to. In every way, the equilibrium is off. 

At best, financial emergencies create workplace stress, and at worst they lead to a toxic environment. Researchers have established a direct link between stressful workplaces and lost productivity. Consequently, financial emergencies create the conditions that lead to further financial loss. It’s a vicious cycle that can spoil an established and effective workplace.

There is a lot a small business can do to insulate themselves from financial emergencies, while avoiding them entirely may never be possible. It may help to remember that business titans like Apple, Tesla, and FedEx all survived catastrophic cash flow problems in their early days. Follow this template to ensure unexpected financial emergencies are disruptive rather than disastrous for your small business:

Prepare for Potential Financial Problems 

The saying ‘an ounce of prevention is worth a pound of cure’ really applies in this instance. Data shows that 82% of small businesses fail because of cash flow problems, illustrating how common and consequential this issue is. There is no way to guard against every uncertainty, but there are ways to make financial emergencies less likely:

• Learn to Forecast – Preparing for any kind of financial downturn requires you to see it coming in advance. Compare the strengths and weaknesses of the business to the economic conditions broadly, regionally, and in the local industry specifically. Any kind of forewarning is valuable; even if the business cannot avoid the issue, it can minimize the impact. Dedicate enough staff, time, and resources to be constantly looking ahead. 

• Build an Emergency Fund – Problems like a lawsuit or losing a top client cut deeply into revenue. An emergency fund is savings you can draw on only in dire situations. Typically, having 3-6 months of operating expenses on hand is recommended, but it varies for every business. Emergency funds should be sequestered from operating expenses so that they remain untouched until absolutely necessary. 

• Diversify the Client Roster – Small businesses servicing many different clients in diverse industries have more insulation against economic downturns. Losing one (or several) clients is less consequential, and problems isolated to one industry don’t affect the businesses disproportionately. Diversification requires you to proactively seek out clients who do not fit the exact target demographic of your current clients. 

• Study Past Downturns – Other businesses have been in the exact same situation before. Studying how past recessions have affected similar companies reveals clues about how to prevent emergencies. Looking just as closely at how similar companies have overcome economic adversity can provide a roadmap for recovery. Just because every business is unique, doesn’t mean there is nothing to learn from peers and trailblazers. 

• Plan for Budget Cuts – How a small business acts after a financial emergency can make the situation better or much worse. Recovering may require budget cuts. Instead of trying to hastily trim the fat, create a plan in advance. The goal of planning is to reduce the impact of cuts on operations and workplace wellness. Making targeted, temporary reductions across operations keep the business lean rather than leaving it under-powered. 

Overcome the Emergency

Financial emergencies can appear quickly from unexpected sources that planning for every contingency is almost impossible. Realistically, small businesses don’t succeed because they avoid the unexpected. They succeed because they adapt. Use these strategies to overcome financial emergencies for your small business:

• Take Out Small Business Loans – Lending provides a financial bridge, just as long as it’s with a reputable lender. The best loans offer an easy application process, quick approvals, and the opportunity to customiSe the details of the loan.. The right lender also offers extensive support and convenient repayment plans. Lending options from National Funding are tailored to the needs of each small business borrower.

• Invest in New Equipment – Sometimes the only way to overcome a financial emergency is by opening up a new revenue stream. This may mean you have to purchase new equipment. Leasing and financing options designed specifically for small businesses make working capital available when it has the biggest impact. 

• Establish Better Payment Terms – Suppliers and trade partners may be willing to extend payment periods for small businesses with a strong track record. If payment is normally required in 30 days, investigate if net 60 or 90 days is possible. It’s a temporary solution at best; having extra cash on hand for just a few weeks may be what helps the business survive.

Desperate times lead to desperate measures. In the wake of a financial emergency, it’s tempting to take a slash-and-burn approach, cutting anything considered nonessential. But when companies do that, workplace wellness plummets, making recovery even more of an uphill battle. 

The better approach is to make your small business resilient. Here, the business is able to minimize the damage, sustain peak performance, and recover completely. In the best instances, the business even comes out stronger – one step backward leads to two steps forward. 

Bio – The Bottom Line is a blog from the experts at National Funding, a leading source for small business loans and equipment financing solutions. We show entrepreneurs of all stripes how to resolve cash flow issues and seize growth opportunities. Check in to The Bottom Line regularly to find advice and insights to help you sustain success, and rely on the resources of National Funding if your business ever needs affordable and accessible lending options.