Thousands of small companies, including traditionally solid businesses are struggling to avoid failure. How do you know your business is in need of intensive care to turn it around? This article will explore 5 common problems that plague failing businesses and the lessons you can learn to help turn your business around and make it profitable.
There are many reasons companies find themselves in financial distress from companies running without a business plan to companies only focused on the top line without considering the bottom line. If your business is struggling then read on to learn why it may be struggling and how to get your business turned around.
Failing to Understand Financial Statements
Many business owners and companies in financial trouble seem to think they can run the business without keeping accurate financial statements that the owner understands. Business owners must understand their finances because without accurate financial records and reporting you are running your company blind. If you do not understand financial statements you need to educate yourself and hire people that can provide you with accurate reporting and explain what the reports are really saying about the health and welfare of your company.
All companies should have monthly financial statements to review within five days after the month end to see what money was earned or lost during the month so that any needed corrections are made quickly.
Failing to Understand Costs
Many failing companies share a common problem. They are unable to accurately calculate their actual costs. If a company cannot calculate their costs they cannot know or understand what products and services are adding to the bottom line and which products and services are dragging down the bottom line. It is absolutely crucial to keep track of costs so that you can raise prices when necessary or cut costs to keep overhead expenses under control.
If this is a problem for your company consider hiring an expert in cost accounting or take a course yourself so that you can accurately manage your costs.
Poor Organizational Structure
Companies cannot operate effectively or efficiently without a clear chain of command. Companies lose thousands and even millions of dollars when responsibilities and authority are not clearly defined. For example, if your company has to comply with FDA regulations and you do not have one person responsible for ensuring compliance then you can end up failing to comply and be subject to high penalties and fines. Often departments may have a lot of shared interaction for such things but in the end one person has to have the authority to act and take the responsibility. If your company does not have a clearly fined organizational chart, job responsibilities and lines of authority this should be done immediately.
Holding Onto Customers That Cost Your Company
Not all customers are worth having. Some customers actually end up losing money for your company. Some customers fail to pay and others place such high demands on time or costs that companies actually lose money on them. Why would a company hold on to such customers? The truth is many companies are desperate to generate revenue even when they are unprofitable. The single best thing you can do to help turn your business around is to go through your customer lists and get rid of all customers that are unprofitable for the company. It may hurt in the short term but it is an exercise that is crucial to business survival.
Conserving Cash Flow and Controlling Costs
Cash flow is critical to any business. You should always understand how long your cash will last. Cash is always king and especially so if your business is in trouble. The first step to conserving your cash flow is to review all of your expenses and identify any expenses that are unnecessary. If eliminating unnecessary expenses such as equipment you can do without, company cars, exotic trade show displays or advertising that is not generating a measurable return then you need to consider other cost cutting measures such as layoffs. Do not waste any of your cash flow. Keep strong business practices in place and keep an eagle eye on all of your company costs and the bottom line as well as the top line.
If your company is still struggling after addressing these five problem areas it may be time for some small business triage. Often when we are feeling highly stressed we cannot objectively evaluate where we are or what truly needs to happen. In this case it may be best to hire a small business turnaround consulting firm or specialist even if you do not think you can afford it.
Consultants will bring an objective eye to your company setup, financials and day-to-day operations. These are people who specialize in saving failing businesses and they have the expertise and connections to get your business back on track.
What You Expect from a Turnaround Business Consultant
When you hire a reputable, qualified turnaround consultant the consultant will do many different things including negotiating payment plans with creditors and suppliers to reviewing all areas of your business and assist you in laying off or firing employees. It is crucial that you are prepared to do exactly what the consultant advises or you risk losing your business. Consultants are generally paid upfront. Before you hire a consultant, research consultants in your area and interview them to ensure you can communicate clearly and comfortably with them. It is crucial that you are able to trust your consultant because the process can be long and often very painful. If your business is established you will probably need to face the fact you will be firing people because it is the quickest way to cut your overhead costs. Preparing mentally for these types of tough decisions is important if you really want to save your company. You can always hire new talent once the company is profitable and stable again.
Running a profitable business requires a willingness to learn and to take direction. If your company is in trouble it is time to do an honest evaluation of your situation and to ask for help. Saving a business takes more than just a wing and a prayer. It takes a commitment to do things you may not like to do, engage the assistance of business consultants with expertise in saving failing companies and to listen and take direction from the experts you hire to help you.