Financial Crisis Management Surviving the Hard Times

By Marcus P. Meleton, Jr.

Most self-made millionaires will tell you that they didn’t come by
their wealth easily. The story of a millionaire who had several
businesses go under before making a fortune and stories of
millionaires who made fortunes, lost them and made them again are
commonplace. Home-based entrepreneurs also go through tough times
running their businesses that requires the the exercise of crisis
management. There is a lot to learn from the actions people take to
overcome or exit a crisis when it hits their business.

Know When Your Business Is In a Crisis

A crisis is when sales in your business is not paying your expenses
and you are eating up your savings at a rate that will drive you
into bankruptcy. It could be caused by a personal loss or medical
problem that affects your capability to do business, sapping the
finances of your business.

Step Back And Evaluate

There is a term, throwing good money after bad. It relates to what
is called “sunk costs.” Once money is spent that cannot be retrieved
by selling your products, services, or business, then the worth of
the money invested is considered to be zero. Investing more money to
retrieve it is like gambling to retrieve losses. It’s throwing good
money after bad.

Almost everyone at some point must step back and evaluate how they
are doing and what the future of the business is. In this situation,
evaluate your incomes and expenses and determine what you expect
these to be in the future. Eval uate your overhead costs (rent,
power, phone), necessary living expenses (mortgage, rent, food,
clothes, children) and the variable costs (raw materials, supplies,
long distance calls, postage, equipment).

Consider these questions:

ï Is my business expanding so that the future looks brighter? If the
business is new, time must pass to give it a proper chance. If it’s
mature and not expanding, this is a different case.

ï Are there changes I can make in my business that will improve my
income. (i.e. adding related products, increasing or decreasing
prices based on current demand, or improving my product or service?)

ï Can I cut costs?

Cost Cutting

Look at expenses and find every way to cut them. This pro cess
should be conducted in crisis or not.

Determine if ad vertising generates profit. If an ad or mailing does
not re cover its costs in sales and expenses, then eliminate the
failing methods or improve the advertising copy.

Unique to home business is the fact that business and personal
expenses are intermixed. Write all expenses down. Categorize and
summarize them monthly. Deter mine which expenses are unnecessary
during a time of crisis, and cut them out (such as expenses for
dining out, cigarettes, candy, and vacations.) Also consider ways to
cut your fixed costs such as reducing phone lines, cutting off 800
numbers, and reducing space costs (storage, office). Con si der
selling unneeded items.

Evaluate your current credit. Those debts on business credit cards
and credit lines are able to be written off on your taxes. Evaluate
the interest rates on each outstanding debt. Consol idate your loans
on business accounts under the accounts with the lowest interest
rates. Obtain a single low interest loan and shift the debt there if
possible. All this can cut your interest costs significantly. If you
still can’t handle the bills, work with the people you owe money to
extend out your payments. Loans on old 401K plans, home refinances,
or new credit cards offering very low interest rates for debt
transferals are options to consider.

Decide Whether To Close Down

If you’ve already cut expenses to the bone only to maintain a
business that loses money each month and if you see little
possibility of improving your situation, you have a tough decision
to make. We never like to advise people to evaluate closing a
business but sometimes it’s best to close it and start something
else that has better possibilities. The experience you gained on
this business will be invaluable in evaluating and operating the
next one.

Summary

Even if not in crisis, evaluate your situation, cut costs, and
consolidate high interest loans. You will improve your operation and
bottom line significantly. If you are in crisis it is this tough
time that can forge the strength you have in future endeavors to
become a successful home business entrepreneur. HBM

Originally Published at http://www.homebusinessmag.com/

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SMB Reviews
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SMBReviews is committed to providing small and mid-sized business owners with the information and resources they need to select the best service or product for their company.

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