Don’t let the excitement of starting your own business blind you from preparing for the unexpected. Getting your business off the ground is just the start of a very bumpy journey. More often than not, unexpected events catch most business owners and end up being very costly.
So as a business owner, one of your biggest problems will be how to deal with these unexpected expenses. That’s because if you don’t, there’s a huge chance that your business will grind to a halt. Fortunately, there are plenty of ways to get you out of your financial fix.
In this piece, we’ll look at how you can address any unexpected costs that you didn’t budget for. That way, you can keep your business up and running despite these financial inconveniences.
Analyze the Situation
A great starting point for handling any unexpected expense in business is assessing the situation comprehensively. All emergencies, not just financial ones, require quick responses to address the issue ASAP. However, in this case, it’s best to slowly go over the situation and use all the information at your disposal to make a more informed decision.
Your primary consideration should be the cause of the problem. If you can clamp down on the cause of the issue, you’ll be better placed to take care of the situation. From the cause of the problem, you can decide which the best and more cost-effective solution is.
Short Term Solutions
Short term solutions give you temporary relief and will deal with the situation at hand. However, it doesn’t do much to stop the problem from recurring. Here are a few temporary solutions you should consider for unexpected expenses.
1. Credit Card
Using your credit card to bail you out of unexpected costs is a viable alternative for small businesses. However, before you use the credit card to get some extra cash, make sure you have a clear plan for paying the money back. It would be wise to get a 0% APR credit card and pay the money back within the stipulated period.
Before you use your credit card, you should note that not everybody can qualify for a 0% APR credit card. You need good, if not excellent credit score to be eligible for the credit card. Also, the zero-interest period expires in about twelve months, so make sure you pay off the loan within this period.
It’s also a good idea to read the fine print keenly and exhaustively before getting a new credit card. There might be a few loopholes in the terms and conditions that may work to your detriment
2. Postponing Purchases
Sometimes when something unexpected happens, one way you can pay for it is by putting off less urgent purchases. You can then channel the money for buying whatever you were to buy to deal with the emergency.
Apart from putting off purchases, you can also consider doing away with buying optional items. You’ll realize you spend a bundle each year on items you don’t even need. Hopefully, by the time it’s time to buy the items for real, you’ll have the money for it.
At least once you address the emergency leading to the unexpected cost, you’ll keep the wheels turning again. You should also consider having a little side hustle to pay for the items in case your business doesn’t pick up as it should.
3. External Financing
There are plenty of financing options to help you cover these unexpected expenses. Here are some that you should definitely consider:-
Friends and Relatives
If you’re in need of some cash, the first people you’ll turn to are mostly your family and friends. You should do the same if your small business runs into some financial turmoil.
For most business owners, it’s super hard to ask for money from your friends and family. Admittedly, doing so does little to improve your image. However, if you’re short of options, then you really don’t have a choice.
If you can gather the courage to ask your family or friend for some cash, then you should. It’s very tough to do so, but sometimes you have to do what you have to do.
Factoring and Accounts Receivable Financing
Sometimes you could have some cash at hand, but some clients are delaying your cash flow. If such describes you, then you should consider factoring or accounts receivable financing. With factoring or accounts receivable financing, you borrow money from lenders, usually non-bank lenders, against your account receivables.
It’s a great way to free up your cash flow and get that extra cash that you need so badly. However, you need to be careful with some lenders that charge outrageous premiums for their financing. So do your digging, find a credible lender, and sell your accounts receivable to them.
Accounts receivable financing is a great way to free up your cash flow to make payroll. However, if you have issues with payroll, there are plenty of ways you can make payroll and even grow your business with payroll funding.
You can look for commercial financing companies to secure some asset-backed financing. As the name suggests, asset-backed financing is financing that you get against your assets.
Most business-owners settle for non-bank asset-backed financing. That’s because these non-bank firms tend to focus on the actual values of the assets that you’ll use as security. Banks are most likely to greatly undervalue your assets, and you’ll probably get less from your assets.
However, remember that you use your assets as security to get this financing. As such, you shouldn’t settle for this financing unless you’re absolutely sure that you can pay back the money in full. If you can’t, you lose risking some of your most-priced assets.
In some cases, seeking asset-backed from commercial finance companies can breach your agreement with the bank. This happens when you’re already borrowing money from the bank. So make sure you read your bank’s terms and conditions or consult with your bank before seeking asset-backed from another company.
You have a mutually-beneficial relationship with your vendors, and they have most likely made a lot of money from you. As such, you should expect them to give you a helping hand when you run into some financial problems. So it’s okay to try borrowing some cash from your vendors and see how it plays out.
Doing so is a practical alternative for most small businesses. That’s because small businesses have a much stronger relationship with their vendors. Plus, the only way these vendors can keep making money is if your business stays afloat.
When borrowing money from vendors, make sure you have all the proof of financial capability at hand. You must demonstrate sufficiently to your vendors that you are more than able to pay back the cash. Some vendors willingly extend their line of credit to strengthen their relationship with you and to keep business running as usual.
Sell Some of Your Stuff
Now before you stop reading, at least give it some thought. It’s hard for business owners to put price tags on their assets and put them on sale. However, when you have unexpected expenses, your hands are pretty much tied.
If you look really hard, you may find lots of items that don’t really add value to your business. If you’ve upgraded your offices and inventory, you may start by selling your old equipment like computers, printers, and the likes. These items can fetch a really good price in some markets, even if you thought they were defunct.
Another option is selling part of your business. Not your entire business, just a small chunk of it. For most business owners, the thought of selling even a nugget of their business is horrifying. However, it’s one way to keep things going, and can even allow your business to grow.
Long Term Solutions
These short terms solutions only do so much for your business. The best they can do is keep the business afloat until another unexpected event puts your business in financial turmoil. So while it’s a good idea to find short term solutions to address the issue at hand, you should also come up with long term solutions.
The first long term solution you should consider as a business is setting up an emergency fund. That way, you can have extra money to keep the business going, in case of any unexpected events. You should also consider some internal reorganization to cut costs and respond more effectively to business emergencies
Plan Ahead For Unexpected Expenses
Unexpected expenses aren’t uncommon in any business. How well you prepare for the unexpected determines your business’s ability to continue its operations. As such, it’s essential to prepare for these unexpected situations adequately, so it doesn’t cripple your business.
If you’re in the mood for more insightful reads, be sure to check out the other pieces on our site.