5 signs your small business is in trouble
By Dianne Buckner, CBC News
Posted: Dec 1, 2011 9:50 AM ET
Last Updated: Dec 1, 2011 10:33 AM ET
It's perfectly natural for entrepreneurs to worry about their businesses. And nowadays, with all the negative news about the global economy and generalized nervousness here at home, that worry is even more understandable.
In a lot of cases, there may be no real reason to lose sleep. If sales levels are relatively normal, the solution may be to focus on the positive and pep-talk yourself, knowing that some degree of anxiety is part and parcel of running a small company. You’re simply experiencing the normal ups and downs of life in the business world, and the accompanying motion sickness!
But having said that, there are also times a business owner should worry about their venture. Here are five of those indicators, along with some suggestions on what to do about them.
1 — You lose a big customer or contract
It’s the nightmare scenario most entrepreneurs fear — one of your most regular and maybe biggest sources of revenue suddenly disappears. Perhaps the client has opted to go with a different supplier; maybe they’re reducing costs and simply can no longer afford your product or service. Whatever the case, it’s a blow.
Advisors always say not to put too many eggs in one basket. “One of the first receiverships I ever did was a company that manufactured pool tables,” says Doug Hoyes, a Cambridge Ontario-based bankruptcy specialist. “And they had one giant client. Then all of the sudden that customer decided they weren’t selling pool tables anymore. It was great while it lasted, but then it was over.”
That makes sense — but sometimes businesses develop organically, and a company does become too dependent on one or two clients. And even if you’re not overly dependent on a client that’s suddenly gone, it’s still a blow. Your costs of doing business are unlikely to go down sufficiently to render the loss of revenue a non-issue.
What to do? The first step is to find out why your client is bailing. If indeed it’s a situation beyond your control, that’s one thing, but perhaps the decision is an indication of an issue with the way you’re running your business. It’s important to understand if the departure is a sign that a change is needed, before any more clients go the same way.
In either scenario, then next step is to ramp up sales efforts — that lost revenue has to be replaced. Don’t delay — it’s takes time to find new markets and/or new clients, develop them, make the sale, and eventually get paid. It may take a few weeks of intense effort, and even brainstorming with the team to identify new possibilities — so get on it!
2 — Clients are taking longer to pay their bills
Everyone sets specific terms for payment, and hopefully clients respect those terms. But if you notice it’s taking longer and longer for certain clients to pay up, you need to address the situation promptly. “You don’t want them to take you down if they’re going down,” says Chris van Staveren, a partner with KPMG Enterprise. He advises a number of the firm’s clients on business strategy.
It’s so true: many a company has been taken down by the failure of its key client. Look at all the auto parts suppliers who had to fight to stay alive when the big three North American car companies were in so much trouble.
“You need to communicate with clients early and quickly, in terms of saying ‘you’re not paying on time, we have an agreed-upon contract of a certain period, and your pricing is predicated on that,’” says Van Staveren. “You also want to communicate that they’re an important customer, you’re eager to keep them happy, but you need to look at some options in terms of payment.”
Van Staveren recommends giving the following options:
- start paying in a timely fashion
- pre-pay before receiving shipment
- pay more for the same goods or services (since regular pricing takes timely payment into account).
He also advises sending someone to pick up the payment, in order to avoid the old “the cheque is in the mail” scenario. “People are much more likely to pay someone that’s at the door than they are someone who is phoning or writing,” he says.
3 — Staff turnover is higher than usual
Sometimes employees can sense the downward trend. And they want to get off a sinking ship. That in itself can exacerbate any other challenges, because hiring is time-consuming, and expensive. Even if you don’t use a professional search firm, there’s a cost in the sense that it takes time to attract and interview people, and then there’s the training period — all of it reducing productivity.
One possible solution? Connect with staff. A good way to stay on top of employee morale is to hold regular meetings to discuss their views on the business as a whole, and any particular issues regarding their work. Engaged employees are less likely to quit, especially if their views are respected.
4 — A change in your relationship with your banker
Your banker calls asking to stop by for a ‘chat’ and wants to review what you have as collateral against your line of credit. Or your line of credit is suddenly reduced.
Maybe you haven’t even noticed, but your banker has clued in that your company’s viability has changed.
“Bankers often look at different metrics,” says Chris van Staveren of KPMG “They may see that your sales are trailing off year over year. And you may get shifted to a ‘special loans’ type of portfolio, one where there’s more aggressive monitoring of your affairs.”
But wouldn’t the business owner notice a problem long before a banker does? “Not necessarily,” says van Staveren. “You may not even be going into your line of credit as much as usual, and think everything’s fine. But it’s because sales are lower. And you think it’s part of the cycle — your banker may see it differently.”
As with the loss of a big client scenario, this is a reason to put more energy into building sales.
5 — The 'fun' factor is dwindling
Fun sound frivolous, but it’s enjoyment and enthusiasm for what we do that makes us successful. If you’re not having fun, you’re likely not bringing your best to the venture. And that could indeed mean your company is headed toward trouble.
"Some entrepreneurs find themselves thinking 'I was really excited when I first started, and now you know what? It’s like a job again,'" says bankruptcy specialist Doug Hoyes. "I don’t think anyone has a job that’s fascinating all day long every day. There are always aspects you like and aspects you don’t like, but having an overall sense of satisfaction is important in running a business."
It’s true that there are entrepreneurs who are at their best during the start-up phase. When it comes to the day-in, day-out reality of running the business, they’re not as excited and may even feel bored. That may be a sign that it’s time to consider selling the business, or taking a less dramatic option — delegating more of those daily duties to your most trusted employee while you perhaps focus on developing new markets and/or products.
None of these indicators is a sure sign your business is going down the tubes. But any one of them could be a clue that you need to respond quickly to manage a situation before it becomes a real problem.
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