5 Early Warning Signs That Your Business May Be Failing

Written by Super User. Posted in Growing Pains

5 Early Warning Signs That Your Business May Be Failing

We began this series by asking When Should a Business Owner Look for Outside Advice? and then Why Don't More Business Owners Ask for Help Before it is Too Late?

The possibility of failure is not a thought most entrepreneurs want to entertain, but statistics indicate that less than 45% of companies make it past their 4th birthday. Business failures can be caused by outside forces such as the increase in global competition, but experts say most stem from internal weaknesses often neglected by owners and managers.

Failure attacks and crushes most businesses for either of two reasons:

  • The entrepreneur is unaware of the major indicators of business failure
  • The entrepreneur notices the indicators but ignores them

The first reason is more common; ordinarily, an entrepreneur would certainly not ignore any indicators of impending doom. But most entrepreneurs don’t know these signs, and this ignorance is what makes their businesses fail. In this post I want to draw your attention to some early warning signs of failure in the hope you can take timely action to salvage the situation.

1. You’re not making a profit

It’s easy to say that you have to make money, but in reality that isn’t true. You need to be making a profit. Bringing in a million dollars a month is useless if you are spending a hundred million. That means you would be losing ninety-nine million dollars every month. Successful businesses make profit. And although you may not be profitable right now, you have to work towards it. According to the Small Business Administration, most businesses fail in the first five years because they can’t make a profit.

But to know if you are making a profit or how much profit/loss you are making, you have to be keeping accurate records of ALL your business transactions. If you cannot confidently say how much sales, profit or loss you made last month, then you have an emergency on your hands.

2. Your sales are not growing

Do you think your business is cool? Who cares what you think! All that matters is what your customers think because they are the ones paying you. If your sales are flat (remain the same from month to month) or declining, then it is a very bad sign.

Again, if you don't have the records to show how much sales you made last month, how they compare to the previous month and how they compare to this time last year, you need help - and fast!

3. Your customers are not happy

Customer service and support is something that can make or break your company. If you don’t keep your customers happy, they won’t come back and buy from you again. Remember, it’s typically easier to get repeat customers than new customers.

But you can't satisfy or delight your customers if you don't know what excites them. If you are not sure what to do to set you apart from your competition in the eyes of your customers, then you need to sit up.

4. People don’t talk about your company

Word of mouth marketing is the best way to grow your business. That is the benefit of great products and customer service. If no one is talking about your company, then you aren’t doing a great job.

Advertising and paid marketing are great, but the organic stuff is what really helps a business grow. For example, people use Google because they heard about it from someone else. Since Google first came out, it never paid for advertising.

Out of all the marketing methods out there, word of mouth marketing is ranked as the most effective.

5. You are constantly under financial pressure

If you find your business is constantly under financial pressure, forever in a cash squeeze, you need help fast. Maybe you have stock but they are not being sold, most of your customers are owing you, you haven't paid your staff for weeks or months and your trade creditors or your banker are calling every hour. These are signs of serious trouble. It is time to call for outside help.

Conclusion

There are many more signs of impending business failure, but our experience and research indicates that these are the most common. A business can only withstand these problems for so long before it goes under. You should watch out for these signs and, if you see them, take prompt steps to nip them in the bud.

Note that sometimes it is difficult for the owner of a business to see these signs in time for several reasons: the financial records necessary to spot poor performance may be absent, inaccurate or incomplete, even the figures are available the ability to interpret them into useful information for decision making may not be there and the owner's emotional attachment to the business may cloud his judgement.

It is sometimes a good idea to involve an independent, objective and professional outsider to help you see things more clearly. We can help.

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