Help! My business is overextended

Every business wants to grow. But there’s a risk of extending your business so far, so fast that you hit the tipping point where expenses exceed income and find yourself in trouble.

Maybe your business added overhead at a rate that surpassed sales. Maybe a dip in the economy led buyers to pull back on their orders. Or maybe the marketplace had competitive complexities that your business plan didn’t identify.

Whatever the reason, financial professional Chau Lai CFP, ChFC, CLU says there are steps you can take to soften the landing for your business and, even better, avoid getting over-extended in the first place.

Work with a team of advisors

When starting a business, assemble a team of qualified professionals to guide you. Begin with a financial professional who can work collaboratively with you and help you. Also, choose professionals who specialize in working with small business owners, such as:

  • Certified public accountant (CPA)
  • Certified financial planner (CFP)
  • Chartered financial consultant (CHFC)
  • Banker
  • Business attorney

Each situation is different, and you may not need the entire team at the outset. The professionals listed above are accustomed to working collaboratively.

 Minimize risk by doing your homework

Starting a business will involve some risks. The goal is to avoid uncalculated ones. Having an idea for a business is just the start. Television shows like Shark Tank and The Profit can help entrepreneurs learn how to ask questions.. How are you going to put the infrastructure, processes, and relationships in place to bring your idea to market? You need to think through the challenges, ideally with the help of your team. 

Develop a business plan

Work with your team to map out milestones for key decisions around staffing, product development, expansion and so forth. Life inevitably throws curveballs. However, developing a plan will provide you with a sense of where you’re going and benchmarks to work towards in various market conditions. 

Watch for warning signs

It’s common for small business owners to focus on day-to-day activities, until there’s a problem. To avoid surprises, pay close attention to financial metrics, such as cash flow. Are you able to cover expenses? What is your burn rate—are you depleting capital quicker than you had estimated?  Do you have more orders than you can fulfill because you can’t afford to buy production supplies or hire enough people?

Pare back expenses

Despite a strong strategy, some businesses will get in trouble. If that happens, say Chau, identify expenses that don’t contribute directly to revenue and begin to cut there. Examples might include:

  • Social media marketing strategies: Are they effective? Are you paying for Google ads that aren’t converting?
  • Staffing: Are there opportunities to reduce staffing without compromising sales? Could a core team handle more responsibilities, at least temporarily?
  • Inventory: Are you carrying excess supplies or production materials?
  • Scaling back: Can you defer some expenses without affecting the delivery of your product or service? 

Grow your network

One of the smartest things a business owner can do is to grow their  network. Find a business mentor and network with other business professionals.. Networking can help  increase the potential to identify new opportunities for talent leads, industry knowledge and even may help increased profits. 

With a little care and the right team, you can find a healthy growth rate for your business. Start things off right by talking to a financial professional today.

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2022-144745 Exp. 10/24

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