What To Do When You‘re Completely Broke as a Small Business Owner

As a small business owner and entrepreneurship consultant, I have worked with many entrepreneurs who have suddenly found themselves completely broke financially. Going from stable to broke overnight can be an emotionally devastating blow and make you feel like a failure. But having coached many entrepreneurs through these situations, I want to provide hope and practical steps to recover when funds run out.

The Psychological Toll of Losing Financial Stability

Let‘s first address the elephant in the room – the shame, embarrassment and blow to your self-esteem that accompanies going broke. Many entrepreneurs tie their business success too closely to self-worth. Just remember, going broke does not mean you are a failure!

Even successful entrepreneurs like Walt Disney and Henry Ford experienced bankruptcy at one point. It‘s often a natural ups and downs of entrepreneurship. The key is bouncing back smarter.

Why Do Small Businesses Run Out of Money?

According to the SBA, the top reasons small businesses fail include:

  • Insufficient capital – 29%
  • Poor cash flow management – 18%
  • High operating expenses – 14%

Other common reasons include poor financial planning, lack of profitability, and unexpected events.

Small businesses have unique cash flow challenges. Income can fluctuate dramatically month-to-month. And there is little cushion for error. One bad month can spell disaster.

Strategically Cutting Costs

When funds run out, reducing spending is crucial. Here are some steps to take:

  • Trim staff temporarily. Keep only essential positions, reduce hours.
  • Renegotiate vendor contracts. Seek better rates, discounts.
  • Delay equipment upgrades and non-essential purchases.
  • Ask landlords for temporary rent reduction. Offer longer lease.
  • Slash marketing budgets. Redirect to most effective channels.
  • Freeze hiring. Only hire if new role quickly pays for itself.
  • Sell unused equipment and assets for cash.

Analyze cash flow daily instead of monthly. Utilize Lean startup principles and only spend where you see proven returns.

According to Fundera, the average small business spends 32% of revenue on operating expenses. Set a target to reduce this by 10% this quarter.

Creative Ways to Quickly Increase Income

To fast track recovery, rapidly boosting income is crucial. Some options:

  • Offer discounts to loyal customers to increase sales.
  • Get contracts from larger companies as a sub-contractor.
  • Monetize unused assets – rent out office space, production equipment.
  • Launch new products or services with faster sales cycles.
  • Tap into your network for freelance gigs and projects.
  • Teach courses on your expertise online or locally.

I coached an entrepreneur who generated $15K in a month by selling templates and online courses related to her business. Think outside the box!

Seeking Professional Guidance

Seeking guidance from professionals experienced with small business finance can provide much needed clarity.

  • SBA business consultants can review your operations and provide advice on reducing costs, managing cash flow, and optimizing processes.
  • Business turnaround experts help reverse negative revenue trends and restore stability.
  • Small business credit counselors can help negotiate lower rates on loans and other debts.

The Investment Board estimates small businesses save 27% on loan interest after consulting credit counselors.

Stay positive through challenges, be proactive, and continue believing in your startup vision. With grit and resilience, you can rebuild from the ashes. My door is always open to small business owners who need support getting back on their feet financially. You‘ve got this!

Tags: