Mountain climber; business challenges conceptJust three years after launching, FedEx was burning a million dollars per month just to stay afloat. Cash supplies were dwindling and the outlook was grim.

With just five thousand dollars in the bank and a five-figure monthly fuel bill, the curtain was about to drop.

With few other options, FedEx founder Fred Smith flew to Las Vegas and sat down at a blackjack table. He left significantly richer and with enough capital to keep his fledgling company going.

Now, the FedEx Corporation employs four hundred thousand people across the world and brings in fifty billion dollars every year.

So, why am I talking about FedEx? Am I really recommending gambling as a legitimate fundraising tactic? (No! I am definitely not recommending you raise seed capital this way—but you wouldn’t be the only person to have done it.)

The point I’m trying to make is that all businesses experience tough times—huge corporations, brand new startups, and everything in between.

Hitting a rough patch is something we all experience—it’s how you react that matters.

In this post, I’ll share three key areas that you simply must address if your company starts to struggle.

Don’t ignore credit control

In my experience, small- and medium-sized businesses often struggle with credit control—in other words, making sure your customers don’t take too long to pay you.

In a lot of cases, there’s a simple explanation for this: The person dealing directly with customers is the same person who’s tasked with chasing up payments.

That’s a really weird relationship.

One moment you’re building a friendly relationship with a customer, trying to pitch new services and bring in more money. The next, you’re asking why a bill is two months overdue.

I understand why that might feel awkward, I really do. However, if left unchecked, poor credit control can wreck a business.

I’ve seen directors ignore credit control for months on end because they simply didn’t want to deal with it. It often got to the point where the business’s cash flow was seriously disrupted and long-term survival put at risk.

Even if you have an exceptionally close relationship with your customers, you should still expect them to pay their debts when they fall due. In my experience, the best solution to the problem is to separate the roles of credit control and sales. In other words, task one person with building relationships and selling your business, and task another with pursuing payments.

However, I understand that many small businesses cannot afford separate roles. If you can’t separate the roles, it’s essential that present clear, strong, consistent credit terms to your customers, letting them know what the terms are, what is expected of them, and how they are enforced. Ideally, all your customers should be on written agreements from the moment you start working together.

As for the practicalities of getting paid, the harsh reality is that the companies who shout loudest and longest tend to get paid first. To stand the best chance of being paid on time, schedule regular emails or phone calls with your customers to remind them of any money owed.

Specifically, I recommend starting the credit control process before the payment is late. Shortly before the due date, re-issue invoices, delivery notes, bank details for payment, and remind your customers of when payment is due. Also, ask them if they have issues. If they are going to pay late, it’s best to know as early as possible.

Once a payment is overdue, a very powerful tool is simply picking up the phone rather than sending letters and emails. A phone call is far harder to ignore, it’s more personal, and it will actually get your customers moving.

In regards to actual credit terms, there is no “best practice” for all industries. It’s a commercial decision based on the customer and business. In general, customers will expect to be given credit; refusing to give it will normally damage a business’s sales, as the customer will be tempted to go elsewhere.

To learn more about invoicing customers (and getting paid faster), check out How to Get 70 Percent of Your Invoices Paid Instantly and Your Invoice Has Been Rejected: Top 8 Tips for Invoicing Corporations.

Establish realistic forecasts

This is a slightly more technical point, and is important if your business is beginning to struggle or is already experiencing difficulties.

I work with a lot of struggling businesses, and almost every single set of forecasts I see predicts a sudden and significant improvement. The explanation for this projected improvement is sometimes as simple as: “We are going to try harder.”

While trying harder is admirable, it’s probably not going to do enough to actually reverse a company’s fortunes.

Sometimes the forecasts I see are actually the original numbers from their business plan, unchanged and unaltered over the years. This is a huge mistake. Business plans should be treated as a living document. Come back to them as much as you can to update the numbers and keep the document relevant.

Going back to the overly optimistic upswing in forecasts, I always ask my clients what they are basing the improvement on, excluding increased effort on their part. If there isn’t an explanation, it’s time to revisit the data.

Prudent forecasts are always based on past data. After all, if you’ve never experienced huge sales volumes in the past, why should you expect them in the future?

Drawing up realistic forecasts will give you a much better idea of where your business will be in three, six, or twelve months and will allow you to plan accordingly. For example, if you identify a temporary funding gap three months down the line, you could arrange a business loan.

Also, comparing your actual sales to your real sales allows you to benchmark your performance and identify (and hopefully fix) small problems before they escalate into larger problems.

Without realistic forecasts, you’re making business decisions blind and just hoping that they play out.

If you are just starting out, preparing forecasts at the start as part of the business planning process is exceptionally important. However, it can also be difficult, as you’re starting from scratch. For new businesses, you simply must return to your forecasts, as every iteration will make it more and more accurate. If you need more information about how to prepare forecasts, our list of forecasting resources should help you get started.

Prepare for the unexpected

Things rarely run as smoothly as they do in a business plan. If they did, we’d all be millionaires.

Even the most settled industries can endure seismic change. I mean, just think about the global financial crisis that led to crises in the automotive sector and housing. Unexpected events are par for the course, and it’s something that businesses ought to be prepared for.

Unfortunately, all too often, plans assume that the business will hit every goal and experience no setbacks. They just assume everything will work perfectly and neglect to build in financial wiggle room.

When something does go wrong (and something will go wrong), idealist directors suddenly find they don’t have the money or resources to adapt and survive.

When you are writing your business plan or recovery strategy, you must build in wiggle room wherever you can afford it.

If things do start going wrong (and I hope they don’t) you’ll be thankful that you prepared for it.

Seek help when things go wrong

If your business is starting to struggle, the time to seek help is right now. Not in ten months when you are locked into a downward spiral. The more time your insolvency practitioner has to work with, the more likely you are to achieve a successful outcome.

By being prepared, having a plan, and keeping your business’s destination in mind, you’ll be able to weather a rough patch if it comes your way.

AvatarBarry Stewart

Barry is a chartered accountant and has specialized in corporate recovery, restructuring, and personal insolvency since 1999. After leaving KPMG in 2016, Barry founded financial advice firm 180 Advisory Solutions.