The world of business is a cutthroat industry where, as a business owner, you sink or swim. When running a business, it’s crucial that you keep an eye on your business operations at all times so that you’ll see the early warning signs that may suggest your business is starting to fail.
If you’re a business owner and you’re concerned about your business and where it’s headed, then this expert guide will provide some insight into the most important signals to watch out for. Let’s take a look now at the 5 signs your business is starting to fail.
5 Signs Your Business Is Starting to Fail
1. Compounding Financial Stress
In any business, you’re likely to encounter some financial strain and stress which, with proper guidance and planning, can be alleviated. However, if you find that you’re beginning to accumulate more and more debt, and your cash flow is beginning to suffer, it’s a dangerous sign that you’re in trouble.
Burgeoning debt is a pretty clear sign that your revenue and cash flow management isn’t as great as what it should be, especially if you’ve previously had great years where your business was in the black for a long while. If your debts are starting to gain momentum, it’s a good idea to assess your income and expenses to see where there are opportunities to maximize efficiency and eliminate wastage.
At times like this, it’s better to try and work on improving your income than spending more and more money on your business expenses. For example, you may wish to consider opportunities to boost sales by identifying opportunities to cross-sell products or services to existing clients, or up-sell them to higher value added services. This requires a full analysis of your existing product and service portfolio as well as a review of the products and services offered by your competitors. This review should also include a blunt assessment of those products and services that are no longer profitable with a view to discontinuing non-profitable lines.
2. Drop In Sales/Conversions
While it’s normal for some sectors to experience a drop in sales during certain periods of the year, it’s not normal to have a drop in sales for the whole year or consecutive years running. A drop in sales means that either:
• The products you’re selling are no longer of interest or are obsolete.
• Your prices are too high against your competitors.
• You aren’t marketing yourself appropriately to the right target customer.
• Your business isn’t as appealing to your customers as you might think.
If you’re experiencing lower than average sales and you’re not sure why this is, then it’s time to analyse your business, ways to improve your income as suggest in the above section, your marketing efforts, and your competitors that are taking you customers. When analyzing these areas, you need to:
• Work out what they’re doing that you can do better.
• Are the marketing channels you’ve chosen the right ones? Are they the same ones your competitors are using?
• Does your business and/or business website look professional, modern and appealing to the eye?
• Are your products still in demand? What can you do to make them more appealing to your customers?
• Do you need to expand, enhance or replace your product/service portfolio?
Analyzing your business and competitors can help to reduce the risk of your business failing or running off track for too long when sales have dropped for an extended period. From a marketing perspective, reviewing sales performance, monitoring the market and emerging trends and opportunities as well as potential threats, is a continuous process.
3. Underestimating the Role of Technology
It’s important to recognize the impact of modern technology and its role in determining how and when consumers make purchasing decisions. In a few short years, the ubiquitous nature of the internet and the massive uptake of handheld devices (smartphones and tablets) has fundamentally changed the way people shop for, and pay for goods and services.
Businesses that failed to keep up to speed with these changes have simply fallen by the wayside. It’s also crucial to continue to keep informed about technological developments in business systems. For example, do you have a reliable and effective online ordering system or a Client Relationship Management (CRM) system to manage your company’s engagement with clients? Do you have secure payment gateways to facilitate financial transactions between your business, your customers and trading partners?
Many business owners simply fail to keep up with technology which leads to lost opportunities in achieving organisational efficiency, increasing costs of maintaining antiquated systems and lost sales as clients will simply migrate to suppliers who offer easier ways of doing business.
Failure to keep pace with the changing purchasing behavior of consumers is a major reason why many businesses fail.
4. Your Employee Turnover Is High
A sure sign your business is starting to fail is when your employee turnover rate is high. The reasons why you may see many failing businesses with a high employee turnover is because many business owners believe that the decrease in sales, conversions and overall profits is due to incompetent or inefficient employees. Because of this, they generally fire and replace their current employees in the hope that the “right” people will arrest the issue of declining sales.
When this doesn’t work, they continue to bring more skilled people in to help improve their business. This can lead to a revolving door of disillusioned Sales Managers or Sales Executives as well as disillusioned business owners who wonder why they can’t find the “right people” to sell their product or service.
When employee turnover is high, it’s time to dig a little deeper to find out what’s really going on in the business. In situations like this, it can be useful to engage an external consultant who can work with all stakeholders involved and provide an objective, impartial view without fear of upsetting the status quo. When it’s your business at stake you need to act fearlessly.
5. When Others Are Noticing Your Business Isn’t Doing Well
Finally, when others are noticing your business isn’t doing well, you know you’re on the track to failure. It’s one thing to notice it yourself, but when others start to see the signs your business is starting to fail as well, this is when you have problems. While this is a bad sign, you can use this to your advantage as well.
If they’re a long term customer, ask them for feedback on what they think about your business, what you could improve, and why they may be looking elsewhere for their products. In gaining this valuable feedback you could have a chance of improving your business greatly and getting it back on track again.
A failing business will have warning signs long before it completely fails. It’s essential to see the warning signs well and truly in advance so you’ll have time to work on fixing them as best as you can. Are you seeing any of the signs your business is starting to fail?
About the Author
Steven McMeechan is a strategic marketing and communications specialist with over twenty years’ experience in senior marketing management roles across a range of industries including Information Technology and Financial Services. He works for Capstone Financial Planning and lives in Melbourne Australia.