Every small business owner has good days and bad days, good months and bad months. But how do you know when you’re not just experiencing a temporary downswing but are in serious trouble?
Here are seven key danger signs that your business is about to fail and steps you can take to keep your business healthy:
1. You can’t pay your bills. If the three most important things in real estate are “location, location, location,” the three most important things in small business are “cash, cash, cash.” Profits are nice, but it’s cash flow that keeps your doors open. If you struggle to find cash to pay your employees, bills, or yourself, you won’t last long.
Solution: Get into the habit of checking your financial statements frequently, paying particular attention to cash flow: who’s paying, who’s not; how much you need to stay afloat. Cut costs wherever you can. And get your invoices out – fast. Customers won’t pay until you bill them.
2. Sales fall off a cliff. If you aren’t making sales, you won’t stay in business. If you’ve been doing well in the past, but now see sales steadily declining – or taking a sudden nosedive – your small business is in big trouble.
Solution: Don’t simply yearn for the good old days, figure out the root problem. Do you just need to step up your marketing or is there a bigger issue? Is your product or service still relevant? Have your customers switched to competitors? Is your location no longer a good fit? Determine the problem and address it – fast.
3. Your employees keep quitting. Unless you’re a sole proprietor, you need employees to keep your small business doors open. If you continually experience rapid turnover of employees, it’s costly and distracting.
Solution: What’s causing the turnover? Are you paying a competitive wage? Do you give employees predictable schedules? Take a critical look at your own management style and skills. Are you the kind of boss you’d want to work for? It’s time to make some changes.
4. You have no competitors. This may sound like a good thing, but competition proves there’s a market for what you sell. You may be running the last video rental store in town, but, face it, your days are numbered.
Solution: Successful companies keep abreast of changing tastes and technology. Small businesses don’t have to be early adopters, but they have to remain relevant. Examine your business carefully to see if you’re changing with the times.
5. Big guys are moving in on your turf. Maybe it’s a big online retailer, a superstore, or new technology, but big well-funded competitors are a real threat to small companies.
Solution: It’s reinvention time. Don’t believe customers will stick with you just because they’ve been loyal in the past. Find ways to change your product or service offerings to be more distinct. Take inspiration from independent bookstores. Despite cut-throat competition from Amazon and ebooks, some indies are thriving, thanks to changing their product offerings, adding in-store events, working together, and supporting the “buy local” movement.
6. You grow too quickly. Growth is good, but fast growth is hard to manage and hard to fund. You often have to make big expenditures before you’ve seen additional income. Employees may feel overwhelmed and over-worked. You’re always stressed.
Solution: Sit down and realistically forecast your financials: when will cash come in to cover the cost of growth. You may need a line of credit or other loans. If cash won’t be coming for a long time, but you’ve got substantial growth opportunities, consider trying to find an investor.
7. Your business is in constant turmoil. If your business faces crisis after crisis, you spend all your time putting out fires rather than building and running your business.
Solution: What’s causing this chaos? Are you trying to do everything yourself? Developing and selling too many products or services? Are you terrible at prioritizing and time management? Address those issues. Start hiring, focus on your bread-and-butter business, and consider bringing in an outside consultant to determine why your business faces so many problems.
It doesn’t take all seven of these danger signs for your business to fail, just one. So if even one of these danger signs sounds familiar, it’s time to take action.
Copyright, Rhonda Abrams, 2017
This article originally ran in USA Today on March 29, 2017