A lawsuit is one of the most damaging things that can happen to a business. Almost everything will be affected—your reputation, employees, yourself, and most pressingly—your finances. If you lose the lawsuit, a hefty settlement may take a huge hit on your business’ accounts, and if worse comes to worst, you may lose a lot more than money after a lawsuit.
Nevertheless, there are plenty of ways you can financially recover after such a setback. You need to fix many other things after a lawsuit, including your reputation, but the money should be on top of that list. After you manage to get the business’ money in order again, you will be better able to focus on the other things that need repairing.
Hence, here are some of the best ways to you can recover financially after a business lawsuit.
1. Get a good lawyer
Ideally, you would have a lawyer before any legal problem even happens to your business. But even if a lawsuit has already occurred, having a good business lawyer by your side can help make sure that it doesn’t happen again.
Just like when an injured person hires a reputable personal injury lawyer to represent them in court, you should spend more than enough time finding the right lawyer to guide your business through legal proceedings and help you avoid problems in the first place. Aside from avoiding lawsuits, a lawyer can also help you receive proper compensation when your business suffers property damage or gets wronged by an insurance company acting in bad faith.
2. Get rid of unnecessary expenses
Until now, every expense may seem necessary, but that can quickly change when your finances take a major hit from a lawsuit. To keep your cash flow as steady as it can be and avoid draining your reserves, start eliminating unnecessary expenses from your bills. This could mean forgoing the employee parties for now or ceasing the supply of free coffee in the breakroom until things are looking up again. Cutting out expenses may not always be permanent, so don’t hesitate to let go of these unnecessary costs in the meantime.
3. Negotiate with your landlord and vendors
During such a difficult financial situation, you need all the cash flow you can get. That said, you may need to start choosing which bills to pay first. To do this, make a list of the bills you absolutely need to pay, then a list of bills you can pay later on. For the latter, start negotiating later payment dates or reduced payments with your vendors as early as possible. Most will likely be willing to cooperate with you as long as a polite discussion happens.
The same goes with your landlord. Rent is usually one of the biggest expenses of any business, and offsetting your payment at a later date (or having a reduced payment) can significantly help improve your cash flow. Don’t be afraid to get the conversation started; the answer is always ‘no’ if you don’t ask.
4. Double down on unpaid invoices
Clients and businesses tend to pay after thirty to ninety days because it helps their own cash flow, but this is obviously not good for you. If you find yourself running low on cash after a lawsuit, it may be best to start asking clients that still owe you money to settle their balances as soon as possible. But unfortunately, not everyone will be willing to shell out cash earlier than expected, so you may have to make it more worth their while.
One of the best ways to encourage clients to pay earlier is to offer incentives, such as small discounts or free services in exchange. Although you may be reducing your profit in doing so, receiving payments now can help your business get back on track after such a loss.
5. Funnel in personal funds
Using your personal funds is not ideal, but when you have no other choice, this may very well be your last resort. To keep your business afloat, improve your cash flow by funneling in money from your personal accounts, selling personal assets, or cashing in on other investments that you may have.
Getting sued is one of the most financially crippling things that can happen to a business, and some unfortunate ones close down because of it. However, with these pointers about financial recovery, you can get out of the woods in no time with more than just a hard lesson learned. Be aware of what you can do when encountering this situation.