Here’s how to tell if your business is headed for the undertaker.
Business deaths are rarely sudden. Like lead characters on TV soapies, few small businesses die overnight but are typically drawn out affairs with lots of warning signs on the decline.
So why do thousands of ventures collapse every year across Australia, terminally unprofitable and cash flow starved?
Rhondalynn Korolak says it’s prudent to look out for early warning signs a business is failing.
Business coach and founder of Imagineering Now, Rhondalynn Korolak, says it comes down to failure to detect commercial illness early.
“Almost every business will experience financial distress or pressure at some stage and the key to survival lies in the owner’s ability to diagnose problem areas and take corrective action quickly,” Korolak says.
So what are the symptoms which, left untreated, will prove terminal?
Here are six symptoms from The Sydney Morning Herald of a weak business pulse:
No new customers
You started with gusto, networking like crazy and marketing at every turn. Business grew. Then you stopped hunting jobs.
The earliest sign a business is failing is when there have been no new customers for six to 12 months, according to Iain G. Mackenzie, author of business titles including Results in a Minute.
“Existing customers drift away for a variety of reasons over the years and if you are not connecting with new ones you are already going out of business,” Mackenzie says.
Prognosis: Can be treated. “Drop the employee mindset ‘no, we have enough business, I am busy enough, I don’t want any more customers’ and start turning things around,” Mackenzie says.
Do you know how much money is in the bank, moving in and out of the bank and what you do that actually makes you money?
If you don’t have your back office paperwork in order, your biz is on a slippery slope.
“Sadly too many business owners have a head-in-the-sand approach to their business numbers,” says Carl Taylor, founder of Business Builders Academy.
“You don’t need to be a math whiz, you just need to know which numbers are important and what they mean.”
Prognosis: Good, if you act fast to engage an accountant or do more DIY bean-counting.
Dodge commercial rot by making sure your business produces timely financial statements and reports, invaluable quick references for calculating and forecasting your business’s all-important cash flow.
Serial price cutting
“Discounting is a major problem in small business as everyone seems to think they need to do it,” Taylor says.
“But they keep eroding their profit margins until they just are not sustainable – no more business.”
Prognosis: Curable if you can stop competing solely on price, increase prices and add value where possible. Expert and excellent service goes a long way to appeasing customers querying a price rise.
Over-reliance on borrowed funds to pay loans and meet other business costs (wages, inventory, leases etc) means your business is going to flat-line sooner than later.
“If a business is experiencing difficulty paying creditors and tax obligations and has a continual need for capital injections and loans because business is not generating enough operating income internally – often selling but not collecting payments quickly enough and relying on credit cards to cover this period – these are sure signs of financial crisis,” Korolak says.
Prognosis: Certain death – unless you reduce debt, immediately.
Inject your sick business with new life by collecting outstanding debts, renegotiating debts, contributing more equity via partnerships or your own money, or selling unused inventory.
Can’t convert a prospect to a done deal? No repeat business? Sounds like sales woes are killing your business.
Poor pipelines, problems converting sales or trouble retaining customers can quickly sap life from your biz, says director of sales consulting/advisory firm Trinity Perspectives, Cian McLoughlin.
Prognosis: “Death by a thousand cuts” if business owners do nothing, McLoughlin says.
“The good news is there is much a business owner can do for low or no cost to remedy these problems and the first thing is asking ‘where are we going right, and wrong?”’
High staff turnover
Losing staff hand over fist? Definitely time to run an HR health check.
Every time an employee leaves it is an intellectual capital loss, and often the loss of customers in service industries including hairdressing, dentistry and accounting.
“You have to teach someone all over again and that takes time away from growing business,” Korolak says.
Prognosis: Recovery likely if you fix underlying workplace culture problems.
“If someone leaves you have to survive it; you don’t really have a business if it is tied to one person including yourself, and create a culture in which people want to stay.”