Published August 23, 2023 • 3 Min Read
Business has been anything but usual for years. Between inflation, wage increases and rising interest rates, it costs more to run a business for most owners these days. And 2023 is shaping up to be another challenge. As you look towards the future and imagine what’s next for your business, you may find you need some external cash to move it forward. Before you apply for funding or credit, it’s important to be prepared — you need to make a strong case for your business to get the funding you need.
Running a successful small business requires careful financial management, market awareness, adaptability, and resilience. While several factors are outside of an owner’s control (economic downturns, competition, illness), owners can take steps to lessen some factors within their control.
Small businesses in Canada can take several steps to help avoid bankruptcy. Here are some tips:
1. Cut costs
This is likely your first thought when finances are tight: Look at all your expenses and evaluate your spending decisions. After you identify and cut unnecessary expenses, look for ways to lower your necessary expenses. For instance:
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Trim utility, internet or cell phone costs
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Renegotiate vendor contracts or supplier terms
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Focus on your products or services that sell best and deprioritize the others
2. Collect any outstanding cash
Make sure you get paid fast. Not only does chasing payments mean you’re not able to focus on productivity, but it also takes away time from managing your business. If things are lean because customers owe you, you shouldn’t have to dip into your personal savings (as many owners admit to) in order to keep your dream alive. Going forward, you might:
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Consider requiring a deposit upfront for work
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Provide incentives for customers to pay early, such as a discount
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Make it convenient to pay you via credit card, Interac transfers, direct deposit or pre-authorized debits (ACH).
3. Diversify income sources
Exploring ways to boost revenue is important at the best of times, but when your business needs cash, finding additional sources of income can make a big difference. You can diversify income sources by offering complementary products or services to your current lineup. You might also consider selling or renting equipment you no longer use. Or if you have space, you might rent it out to have additional money flowing in.
4. Utilize Government programs and support
Canada offers various government programs and grants for small businesses. Staying informed about available grants, loans, and subsidies may provide additional financial assistance during challenging times.
Recommended reading: Looking at Government Grants for your Business? Read These Tips Before You Apply
5. Seek professional advice
Professionals like accountants or financial consultants can provide valuable guidance on managing finances, tax planning, and navigating the potential financial challenges of your business. If you’ve found yourself with multiple unsettled debts and feel you need more time to pay them back, you might consider speaking with a Licensed Insolvency Trustee to help you make a proposal (a payment arrangement with your business’s creditors). This allows you to remain open as a business and gives you more time to pay off your debts, unlike filing for bankruptcy, which will effectively end your business once your creditors have been paid.
By implementing these practices, small businesses can enhance their financial stability and reduce the risk of bankruptcy. It’s important to remember that each business is unique, so it’s advisable to tailor these tips to your specific circumstances and seek professional advice when needed.
This article is intended as general information only and is not to be relied upon as constituting legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. Information presented is believed to be factual and up-to-date but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its affiliates.
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