We Started Our Business Without Sufficient Funds. What Is The Best Strategy For Our Business Moving Forward?

Key Takeaways:

• It’s quite common for businesses to start out with too little money.
• Have a system in place to spot cash problems as soon as possible. Make sure to have extremely adept financial advisors who can use historical data and predictive modeling to identify these issues before they get out of hand.
• Companies should also put protocol in place for austerity and cost-cutting measures in the event of a cash problem.
• Business owners need to be aware of all potential sources of cash infusion (i.e., grants, loans, refinancing, investments) and need to know exactly how much they need and how they can guarantee repayment (i.e., making themselves “bankable”).
• If your cash problem is immediate (i.e., you are running out of cash tomorrow, or even next week), you can hire a specialist like us to help you consider all the options for reorganization and/or restructuring.
• Sometimes, what an owner actually needs is permission to consider closing their business to pursue something else.
• It’s very important to have a well-structured business plan when you start your business. It should not be in the owner’s head; rather, it should be an external document. This is the story you are telling about how the company is going to make money. It is essential for the other participants and investors in the company to see and give invaluable feedback on. It should also be considered a living document, subject to change over time.

The problem of starting a business with too little money is more common than you might think. I would say that starting with too little money—or “under-capitalization”—is probably one of the main reasons that small businesses fail.

In the event that you start your company with too little money, there are a few major things to keep in mind.

1. Figure out the problem as soon as possible. When it comes to running out of money, the sooner you realize your issue, the better. In order to catch the issue, you are going to have to have knowledgeable, savvy people paying attention to your numbers. As such, you should make sure that you have tremendously capable finance person on your team.Notably, I’m not just talking about an accountant here. An accountant is only going to be looking at historical data. Instead, you want a financial professional who can do some degree of predictive modeling. This way, you can tell exactly when you’re going to run out of cash, and the more lead time you have the better off you are, and the better you are going to feel.

   I want to re-emphasize the emotional factor in all of this. How you feel about your company’s problems is a huge factor. It’s scary to think that your business is going to run out of money.

   If you can catch the issue when you still have 8 weeks or more of cash left, and you have time to implement the changes necessary to not run out of cash, you will feel significantly relieved and much less of that pressing existential dread of a looming “running out of money” date. With that much time, you should have the emotional clarity to understand, as the owner of this company, exactly what you need to do—ideally under the advisement of the financial professionals who alerted you to the problem in the first place.

2. Create an infrastructure for identifying and taking all necessary austerity measures. Once you have identified that you have a problem with insufficient capital, you need to be able to identify and implement measures to redirect the course of your company.Ideally, you should set up this infrastructure in advance of the problem, so there is a protocol for you to rely on in times of increased stress. However, even if you did not set up a system like this in advance, you can still implement measures of austerity to eliminate waste in response to the cash flow issue, ideally under the advisement of financial professionals.

3. Identify grant opportunities. Find areas in your space where you can distinguish yourself. Then seek opportunities to fund the growth in your niche through targeted grant opportunities. Grant opportunities are more prevalent than you may think, and it is up to you to seek them out. Doing so means understanding where your margins are and making sure that you’re keeping your inventory in check. In addition, connecting with the grant and angel ecosystem results in additional connections for potential investment in your business.

4. Decide on what sort of capital you need and pursue it. Grants and cash from sales are not the only sources of cash for cash-strapped companies. There are other decisions that a company’s owner needs to make, such as whether they are bankable.If, for example, you’re going to run out of cash in 8 weeks, but you know that you have significant accounts receivable that are due in 12 weeks, you should examine what sort of bridge capital you need to get you between the 8-week mark and 12-week mark. Once you figure that out, you need to figure out what the requirements are for obtaining that sort of bridge capital.

   Understanding the numbers involved and the amount of money you will need, and when—as well as how you can guarantee repayment—are crucial to this part of the process.

Now, if you’re in a situation where you look at your bank account and realize that your company is going to run out of money tomorrow, that’s a much different situation. You are not necessarily a lost cause, but there are more drastic measures that you need to take to fix your dilemma.Some of these more drastic measures may include potentially calling a firm like ours, to look at how to restructure the company.

Importantly, when we say “restructure”, what we’re actually doing is buying you some breathing room. An opportunity to look at the debts for a period of time without running the risk of being sued, levied or garnished. Running out of cash creates a host of immediate pressing problems. It means the employees that you have on staff no longer have a source of income, which leaves them and their families without support. This is often absolutely devastating to an owner, and can incite an immense amount of panic and negative-emotion decision-making.

It can therefore be incredibly helpful to be able to speak with a firm like ours.

In one hour, we can give you a perspective on possible immediate and long-term measures to put in place. Often, this buys owners the breathing room they need to be able to create an environment conducive to the company staying in business, and which does allow those employees and their families to continue moving forward and growing. That alone is often a big relief for our customers and is the first step in re-organizing successfully.

We enable owners to think clearly by giving them an objective evaluation with enough space for perspective about what’s gone wrong. In some cases, this doesn’t actually mean saving the company. It means making an exit plan and letting it go.

When you’re looking at what happened to your business over the course of the past few years to create this sudden cash problem, sometimes there’s a deeper underlying issue. Sometimes the real issue turns out to be that this market isn’t working for you, or the business isn’t working for you. In some cases, owners realize that their company has been draining them personally, professionally and financially. We help them realize what they need is to give themselves permission to consider the idea of closing the business and doing something else.

Of course, these are the more drastic measures that you can take and are usually only relevant when you’re a day or a week away from running out of cash.

How Common Is It For Small Businesses To Start Without A Well-Developed Business Plan? Can You Restructure Your Business Plan At Any Time?

The interesting thing about the idea of starting a business without a business plan is that it’s technically impossible. Every business starts with a business plan. The question is whether it’s written down, and whether it tells a cohesive story about how the business “wins” in the endeavor.

It is very common for people to start businesses without a well-crafted, written business plan, or even without a business plan that they have bothered to write down. I have often heard business owners tell me that their “business plan” is in their head, and they’re just “executing it from there.”

The problem with a business plan that lives exclusively in your head is exactly that: it’s exclusively in your head. Your team and all the other people involved in making your business plan a reality—whether they’re co-founders, employees, contractors, vendors, or anyone else—have no way of knowing what the business plan entails. As such, they have no way of providing you with valuable input about the different parts of your business that they interact with, especially if they are exclusively operating those parts of your business. This input is often absolutely crucial for you to make better decisions as the owner, as the executor.

So, although it is very common not to have a fully formed, written out business plan when you start a business, it can quickly and easily lead to avoidable disaster As such, I recommend having a written, reviewed, and well-considered business plan before you start your business.

Of course, having a business plan when you first start the business doesn’t mean you have to stick to that exact plan over time. In fact, you should fully expect your business plan to evolve and change extensively, to the point where it’s normal to update a business plan regularly – more often when you’re growing quickly.

Your business plan should be considered a living document. Initially and throughout time, it will be the “story” of your company and what you are doing/intend to do. It is the way that you tell your “investors” a story about the business and how it is going to help you generate money. Your “investors” may be employees, your spouse, your family, your children, the people who put money into your company to allow you to do this, or anyone else making an investment of their time, money or reputation in the business.

The people who are most invested in the company are going to be the best people to share your business plan and the ensuing story with, because they have vested interests in your success. Keeping the story in your head—the story of how the company is going to work, and how it is going to make you all money—isn’t doing any good to anyone. It’s not good for you, it’s not good for the other people invested in the company or working in the company, and it’s not good for the company itself.

Once you look at it from that perspective, it makes no sense not to start your business with a business plan.

Typically, the very first thing that I ask clients for in consultation is their business plan. Unfortunately, what I most often hear is “We don’t have a business plan”, or “The business plan is all in my head”, or, “We have a business plan, but we haven’t looked at it in years.”

The key is to remember that a decision not to have your business plan exist as a living document outside of your head can be the start of a much larger problem. It is your guide for how you plan to go from point A to point B to point C. Without the map to follow, you can easily end up lost.

For more information on Business Restructuring Law In Michigan, an initial consultation is your next best step. Get the information and legal answers you are seeking by calling (248) 246-1166 today.