International Small Business Day: Six practical steps to keep up with your finances

Canadian small business owners are facing many challenges in today’s volatile landscape — from industry-specific tariffs to fluctuating prices. It’s easy to fall behind on your finances in an uncertain environment and miss the early warning signs of financial trouble. However, this can have severe consequences for small business owners, including bank action, selling all or part of your business, or injecting your personal finances into the business to keep it running.

Let’s discuss why small businesses often fall behind on their finances and the potential outcomes of failing to keep up with your financial obligations. We’ll also share six practical steps to help you stay on top of your finances in today’s uncertain environment.

Why do small businesses fall behind on their finances?

Falling behind on your finances means that your business is unable to keep up with its financial obligations. This may look like delaying payments to suppliers or vendors, falling behind on your lease or loan payments, and carrying escalating balances on your line of credit.

These are several common reasons why small businesses may fall behind on their finances:

• Less capital and equity: Many small businesses do not have the capital and equity to withstand significant financial setbacks, including economic downturns, tariffs, or increasing operational costs. This makes small businesses especially vulnerable to financial distress.
• External environment: Small businesses are disproportionately affected by external factors, including tariffs, fluctuating prices, and industry-specific challenges. Each of these factors can reduce revenue and cause financial challenges.
• Delayed response: Many small business owners lack the resources to address financial issues quickly or are optimistic that the situation will improve and fail to make necessary changes. This often leads to increasing financial issues.

What happens when you fall behind on your finances?

Falling behind on your financial obligations often starts small — however, one missed loan payment can escalate to multiple missed loan and supplier payments and a high balance on your line of credit. Failing to address this problem early can lead to significant legal and operational challenges down the road.

These are several of the consequences small businesses face when they fall behind on their finances:

• Personal impact: Small business owners who fall behind on their finances may need to inject their personal cash into the business to keep operations running. This may involve taking out a personal loan, using your home equity, cashing in RRSPs, or exploring other avenues. This can lead to a total loss if the business does not recover.
• Bringing in a partner: You may need to bring in a new partner to inject new capital into the business. However, this may involve losing part of your control over the business depending on the partnership.
• Selling the business: Some small business owners may opt to sell part or all of the business. However, this option is often unattractive if the business is undervalued.
• Legal and financial outcomes: Small business owners may experience bank action, creditor protection filings, receivership, or bankruptcy if no corrective action is taken.

How to keep up with your finances

Small businesses are particularly vulnerable to financial setbacks and face severe consequences for falling behind on financial obligations. This makes it crucial to take a proactive approach to keeping up with your finances.

These six practical steps can help you get started:

1. Keep an eye on your environment

It is important to avoid complacency and stay on top of what’s happening in both your internal operations and the external market, including broader economic and political factors. It is also important to maintain awareness of customer trends and the actions of your competitors. This helps ensure you are not blindsided when the environment changes and can also help your business strategies stay relevant and sustainable.

2. Monitor your cashflow

Continuously review both your short- and long-term cashflow. This will help you identify and react to cashflow pressures early before the situation escalates. Monitoring your cashflow can also help you better understand your spending patterns and identify unnecessary expenses. This enables you to proactively trim these expenses to free up more cashflow and maintain the financial health of your business.

3. Act early

Many small business owners are optimistic that the situation will improve, which prevents them from taking preventative measures early. Respond quickly to financial health issues instead of waiting until losses accumulate. Cutting costs, restructuring, or exploring other options can help improve the chances of business survival. However, while it is important to make decisions quickly, it is also crucial to ensure you don’t act without sufficient information.

4. Do more with less resources

Consider what your business can do to achieve more with the same or less resources. This might include exploring different sales strategies to gain new customers, shifting your focus to prioritize products that bring in the most revenue, or seeking new ways to improve operational efficiency. Strengthening your relationships with suppliers can help you gain access to better pricing and cross-training employees can help reduce operational disruptions. 

5. Make difficult decisions

The decision to reduce staff or other expenses can be difficult — especially for those who operate family-run businesses. However, it is important to remember that sometimes these measures are necessary to preserve the financial health of the business and the careers of your remaining employees. It may be necessary to make these difficult decisions if you have already explored options such as doing more with less resources and cutting unnecessary expenses without results.

6. Seek professional advice

Small business owners often have their own accountant and legal professional. It is important to consult with these professionals to gain new insights and understand all the options available to support your business. Bringing in a third-party restructuring professional, accountant, or other advisors can also help you gain valuable perspectives and detailed business plans to improve the financial health of your business.

Take the next steps

For more information, contact a member of MNP’s Corporate Insolvency team. We can help you understand the underlying causes of your financial difficulties, provide an unbiased perspective of your best path forward, and administer legal proceedings to address unsustainable debt.