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:

 

              • 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.

 

              • 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?)

 

              • 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