Ask a Financial Professional: 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, Chau recommends assembling a team of qualified professionals to guide you. “If this is your first business, you don’t know what you don’t know, and that’s where you can get in trouble,” she says. Choose professionals who specialize in working with small business owners, including:

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

“You don’t need the entire team at the outset,” Chau says. “Begin with a financial professional. They are generally accustomed to working collaboratively and can help you build your team.”

 Minimize risk by doing your homework

“Anyone who starts a business is going to take risks, but you don’t have to take uncalculated ones,” says Chau.  She says that television shows like Shark Tank and The Profit can help entrepreneurs learn how to ask questions. “Just because you have a big idea doesn’t mean that you can make money with it. 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 won’t go exactly like your plan, but you’ll have a sense of where you’re going and basic benchmarks to work towards,” says Chau.

Watch for warning signs

Small business owners tend to focus on day-to-day activities until there’s a problem, says Chau. To avoid surprises, she recommends paying 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? 

Act like a big business

One of the smartest things a business owner can do is to act big, say Chau. “Imagine you own a large corporation and are accountable to a board of directors,” she says. She recommends finding a business mentor or networking with other business professionals who can serve that purpose. “Schedule regular meetings to report metrics to one another and talk about your business as though you’re running it for a board. You will feel a greater sense of stewardship and responsibility to manage the business professionally instead of letting it run itself.”

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.

Brought to you by The Guardian Network ©2020. The Guardian Life Insurance Company of America®, New York, NY.

Chau Lai is a Registered Representative and Financial Advisor of Park Avenue Securities

LLC (PAS). OSJ: 3585 Maple Street Suite 140, Ventura, CA 93003. Securities products and advisory services offered through PAS, member FINRA, SIPC. Financial Representative of The Guardian Life Insurance Company of America® (Guardian), New York, NY. PAS is a wholly-owned subsidiary of Guardian. Pacific Advisors LLC is not an affiliate or subsidiary of PAS or Guardian. Insurance products offered through One Pacific Financial & Insurance Solutions LLC, DBA of Pacific Advisors LLC. Pacific Advisors LLC is not registered in any state or with the U.S. Securities and Exchange Commission as a Registered Investment Advisor. CA Insurance License #0C08038.

Guardian, its subsidiaries, agents and employees do not provide tax, legal, or accounting advice. Consult your tax, legal, or accounting professional regarding your individual situation.

2020-94808 Exp. 02/22