A financial loss is devastating for any entrepreneur. It could lead to bankruptcy or cause a business to shut down completely. It's understandable why entrepreneurs dread financial losses and why many find it challenging to recover. But a financial loss isn't a death sentence, and with the proper steps, entrepreneurs can make their way around almost any kind of loss. Here is how you can regain your financial resilience by exploring these 10 ways to overcome financial losses as an entrepreneur.
1. Embody a bounce-back mindset.
It's natural for you to become worried about regaining your financial footing after a financial crisis. Be that as it may, bouncing back will require you to manage disappointment and move forward confidently by focusing on recovery.
James Altucher, the author of Reinvent Yourself, once explained that he had to pause and stop judging his "self-worth by his net worth" before he could manage his suicidal thoughts and eventually overcome a $10 million loss. Grieving a financial loss is a necessary process. From that place, you can muster the courage to try again to create a recovery plan.
Because of your financial loss, you might move too quickly from a place of fear and scarcity to attain your previous financial status. You may try to build too soon through loans (which have the disadvantage of high-interest rates) rather than patiently seeking grants.
Ask yourself the next best step versus rushing into another financial decision. Take a deep breath and remind yourself to approach the situation calmly and strategically. Let's use an example of a manufacturing plant with an inventory shortage that forces its operations to halt to illustrate how you, too, can bounce back by taking these same steps.
2. Understand the source of your loss.
One way to bounce back from such a loss as an entrepreneur is to audit your finances. Identify which actions caused the financial loss. This will help you to prevent similar losses in the future. With the manufacturing plant, we would work backward to identify the misstep that caused the operation to shut down, causing a momentary loss of income.
3. Create a financial plan.
Once we identify the source, we will create a plan to prevent this from happening in the future. First, devise a plan to track and stock your inventory regularly. This will let you know when inventory is low. You can then arrange a replenishment system with suppliers to restock inventory automatically. With procedures in place, you can also notice wear and tear or any other malfunction in advance.
Hire an accountant who will determine the cost of inventory, automated services, personnel who will manage the inventory, and technicians who will ascertain the condition of any inventory. Start with nine tips to grow on a budget to get started.
4. Stick to your budget.
A financial loss can sometimes be the result of overspending. This overspending occurs when you purchase products that are outside your budget. For example, new business owners are usually eager to have a big team. As such, they often hire more employees than necessary, creating a financial deficit through salary payments and human resource management. Businesses also overspend by overusing resources, paying hidden fees, and overpaying for additional products or subscriptions.
Overspending is a harmful financial habit. However, it might not hurt your finances if it rarely occurs in your business, but it can become a huge problem when you frequently overshoot your budget. Stick to your budget, and develop discipline and self-control around your expenditures.
5. Activate your savings or emergency funds.
Savings or an emergency fund is every entrepreneur's best friend. In the case of a financial loss, it offers something to fall back on. Having savings can provide a temporary source of funds until you can receive help through grants, family contributions, or crowdfunding. This can prevent you from taking loans which could later produce unmanageable debts.
6. Apply for grants.
Grant money is an excellent option if you're experiencing a financial loss because you're not required to pay it back or worry about any interest. However, a catch is the issuer of the grant will want verification that the money granted will be used for what is on the grant application.
Search for grants that coincide with your business niche and your need. Once you find a suitable grant opportunity, follow the application process and use the grant as part of your financial recovery process.
7. File bankruptcy or debt relief.
Debts with high interests may accelerate a financial loss. In such cases, an entrepreneur can file for bankruptcy or debt relief. Bankruptcy offers complete relief from debts through a court order, while debt relief extends the duration for debt repayment or reduces the debt repayment amount.
8. Activate your insurance.
Insurance is more or less a financial safety net. It's only payable in the event of a loss. Business insurance will work well as a bounce-back mechanism for you. If you don't have insurance, alternatives are available—for example, cost-sharing programs and discount cards, which offer purchase discounts to holders.
Insurance companies such as AIG, Berkshire Hathaway, and Cigna sometimes have their own unique processes for user registration, verification, and insurance payouts. Taking the time to determine what an insurer requires for each process will make it easier to buy and claim insurance.
9. Connect with other entrepreneurs.
Connect with other entrepreneurs for support. These connections can provide you with new ideas, inspire, and help you shift your mindset. Examples could be online communities, conferences, and forums.
10. Talk to a professional.
There are two sets of professionals that come in handy for a bounce back from a financial loss. These are accountants and lawyers. Seeking consultation from an accounting professional will help you find ways to execute your new financial plans or seal leakages in your finances. These professionals also assist business owners in performing air-tight audits, which could uncover poor financial record keeping. For an entrepreneur, associating with a knowledgeable lawyer will be the difference between winning or losing a lawsuit or falling into a predatory contract.
If you find yourself in a financial loss situation, this could help you to bounce back from a financial loss as an entrepreneur. The above ten steps will guide you into putting that financial loss behind you and creating suitable strategies with action steps.