5 Signs Your Business Could Be in Trouble
When a company starts losing the wrong customers, the ones who make up the bulk of its profits, and is having a hard time replacing them, the owner might want to figure out why.
Many small business entrepreneurs do not realize their business is in trouble until they have difficulty paying their invoices.
Experiencing cash-flow problems can have many reasons. Some are less serious than others.
Suppose one of your customers paid a bill late. It could have been a simple oversight or something more severe, like your customer didn't have the money to pay your invoice. Cash-flow problems can be temporary or persistent. Neither is good and could indicate more serious underlying issues with that business.
Not being able to pay a bill is often the most obvious symptom that a business is in trouble. But there are five other early warning signs that something isn't right.
1: You Don't Pay Off Your Business Credit Card Every Month
A business credit card is often a convenient way to buy from suppliers. You can even earn points or cash-backs, which you can reinvest in your company.
Unfortunately, your credit card purchases are not deducted from your checking account balance until you pay your credit card bill. This time delay can give business owners a false sense of how much cash they really have in their checking accounts.
If you start experiencing difficulties paying off your business credit card every month, you may have built a cost structure that is too big for the cash your company generates, or you might have taken out too much money for yourself.
Whatever the reasons, even if they are only temporary, it's worth understanding them and correcting your course before the debt becomes too big to handle on your own.
How Much Should You Pay Yourself as a Small Business Owner? The free-cash-flow method can help estimate the amount of money you are safe to take out of your business.
2: You Have Fewer Customers Than You Used to Have
Having fewer customers is not a sure sign that a business is in trouble. It may even be good. Quantity doesn't equal quality.
But when a company starts losing the wrong customers, the ones who make up the bulk of its profits, and is having a hard time replacing them, the owner might want to figure out why.
In my experience, you have to dig deep to find the root cause. Otherwise, you can waste a lot of money and energy trying to fix the wrong problem that doesn't address the real reasons behind customer churn. For example, remodeling the interior decoration of a restaurant wouldn't improve the deteriorated quality of the food it serves.
3: You Need More Than a Day to Respond to a Customer Inquiry
Long response times often indicate less efficient, manual processes.
When a business takes longer than its closest competitor to respond to a customer query, it is severely disadvantaged in the market because many contracts go to the first company that replies and engages with the customer.
Well-run companies know this and check for inquiries several times a day, usually responding the same day or the next morning at the latest. That also applies to questions coming through social media.
How Long Should It Take You to Respond to an Inquiry? Try to respond to inquiries by the next morning. If that's challenging for your business, customer relationship software could give you the necessary productivity boost.
The Job Often Goes to the First to Respond: Responding to inquiries consistently in a short timeframe requires more than will. It requires a secret enabler in the background: a digitized workflow.
4: It Takes You Longer Than Your Competitors to Prepare a Customer Quote
How long a business should take to prepare a customer quote depends on the job's complexity. Think of a wedding planner working on a quote for 200+ guests. Coordinating with the venue, catering, and flowers can take longer and be more complex than organizing a 2-person picnic.
But, when creating a quote, you need to balance two opposing goals: speed and accuracy.
Many owners believe that the quicker they prepare an offer, the less accurate it will be and that a precise quote will take time.
In my experience, this doesn’t have to be the case because there are fewer variations between offers than one might think.
The trick lies in creating scalable building blocks that you can combine to cover roughly 80% of the scope. That way, you have more time to deal with the remaining 20% of the scope that is unique. That's how the best companies do it. If your business loses a lot of bids to your competitors because they respond faster, chances are, they follow this methodology too.
How to Create Proposals Faster: Using standardized components can significantly reduce the time spent creating proposals.
5: You Don't Know Your Company's Monthly Profitability
When business owners don't know their company's monthly profitability, they're flying blind. It would be like a pilot looking out the cockpit window to determine the airplane's altitude, direction, and speed. That's great as long as the sun is shining and the weather is good. But when there is no clear view of the horizon, pilots must rely on instruments to navigate safely. The same applies to companies.
How can you know if a project or business line is profitable if you cannot check every month if it is? Because you don't have these financial insights available, companies that don't track their monthly profitability often run into trouble soon after a recession hits when money and contracts become scarce.
5 Reasons Why Knowing Your Profit Is Crucial for Your Company’s Success: Profit is the most straightforward metric that will bring financial transparency to your business and allow you to uncover long-hidden underperformance.
Beware the Small Signs
Financial difficulties rarely happen suddenly. The signs are usually there for everybody to see. But it often takes a lot of courage for the owner or a concerned family member to ask for help. However, the sooner any problems can be addressed, the easier it usually is.
