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Financial Strategies for Troubled Firms

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If your business is facing severe financial difficulties, here are some turnaround financing strategies to consider.

There are strategies that troubled companies can use to save themselves from dire straits and regain their former financial footing. These same strategies are valuable for business owners and financial executives to understand how their firms can avoid financial turbulence and failure.

Business failure or bankruptcy never happens overnight. Normally there is a gradual trend of financial deterioration that is sometimes exacerbated by industry troubles. 

Firms that are on the precipice of failure or bankruptcy do not have many options or time left. It has to fix itself or sink. No business owners or entrepreneurs want to face bankruptcy, liquidation and other creditor issues.

Do financially failing firms survive because of a revival in products or services, or have they taken steps to improve financial management? This is a challenging question, because the very financial problems that beset a firm hinder it in getting new sales, acquiring inventory and regaining supplier credibility.

Further, banks and other finance companies do not throw themselves at failing firms with financial offers of loans, lines of credit, etc. In fact what usually happens is that the company is forced to pledge some or all assets at much higher rates, sometimes simply accentuating the financial problems that were already there.

So what are the financial strategies that a firm can undertake to avoid financial failure when it has been losing sales and not generating profits?

Here are three solid strategies struggling business owners can undertake today. 

Strategy 1: Assets

Assets have value. They can be sold, refinanced or pledged to secure new financing. However, it is a one-shot strategy. It either must work or it doesn’t. Asset maneuvers have three stages of success: they can be used to get a new loan, assets can be sold, or they can, in the worst-case scenario, be liquidated.

Strategy 2: Debt and equity

Debt can be structured to ensure the lender gets a reasonable reward and that the company can repay the loan and survive. There are many types of debt to consider. A firm could, for example, issue debt and repay it only when the company is profitable again.This would normally entail higher rates, but again, a transaction has to make sense both for customer and lender. A solid alternative solution is to restructure existing debt at new rates and amortizations.

Strategy 3: Outside help

A firm sometimes has to look to the outside for help. Since business owners and managers are often too close to the problem, it can be a classic case of not seeing the forest for the trees. Outside consultants and industry experts can often bring a solution to the table. They have insights that management may have overlooked, such as developing new sales and product strategies, bringing in new management or considering a strategic merger.

Just because your business is struggling doesn’t mean it can’t be saved. Some famous business leaders today have, at one time, faced formidable financial and business difficulties. To turn your business around, business owners, along with the management team, must uncover what the underlying problem is and then adapt strategies, financial or otherwise, to fix those problems.

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