The course of a business never runs smoothly. Every company will experience challenges during its life, and the key to resilience is being able to address those challenges.
In many cases, you will overcome barriers with simple solutions (such as making minor adjustments to your operations or seeking a financial injection). However, there will be times when the issue is too big, and no small measure fixes it. Instead, a complete turnaround is required.
A turnaround is where you transform your business, usually after a period of poor performance. It requires changes across your operations to get the company back to a healthy position – and often an injection of capital is required to cover the associated costs.
We list the signs that you need a business turnaround to know when to take decisive action.
Long-term cash flow struggles
Cash flow problems frequently occur in business. Late payments, declines in sales or rising costs will lead to it. In most cases, they are temporary.
However, if your cash flow struggles become long-term, it could signify that change is needed. Poor cash flow is often a sign of other issues – usually that your revenue is too low or your costs are too high, leaving you with little room in between.
If left unaddressed, it will result in more significant problems, so it’s crucial to take turnaround action quickly.
Downward profits
If your profits are declining, especially if this happens consistently over time, it’s a red flag. Reduced profits will result from falling sales or rising costs, which spell trouble for your company.
It also suggests you won’t be able to grow, which will impact your resilience in the future.
If your profits aren’t declining but are stagnant, it could still be a sign you need to transform to focus on financial growth again.
Declining customer books
A business is nothing without customers driving sales and revenue. If you experience reduced sales or loss of customers, it will generally lead to financial instability.
Falling sales could come from customers ceasing their relationship with you altogether, spending less or purchasing less frequently. Sometimes, it only takes the loss of one significant contract to dent your finances.
If customers are stepping away, it’s crucial to try and understand why, as this becomes an integral point of your turnaround strategy.
Unsolvable debt
Taking on debt isn’t an issue for your company if you can afford to repay it. If it gets to a point where you have debt hanging over you that you cannot afford to clear, there will be trouble ahead.
Unresolvable debt is often an indicator of other issues, such as low revenue or poor financial management.
Many businesses fall into the trap of seeking external solutions to boost their finances, leading them into a debt spiral. In these cases, turnaround is needed to break the cycle and address the underlying problems.
Fully drawn credit lines
Alongside debt, fully drawn credit lines (including maxed-out credit cards and overdrafts) are a warning sign. It usually suggests that you do not have the cash available within your business to operate daily, leaving you reliant on other sources.
Maximising your credit lines will lead to further debt if you cannot repay them. If you are at this point, you need to seriously question your business’s financial health and seek solutions.
High costs
Rising costs are another standard part of business, especially in response to inflation or growth periods. If there’s increased revenue to offset the expenditure, it isn’t necessarily a problem.
However, if costs become overwhelming, they will reduce cash flow. It may even get to a point where your expenses are so high that it no longer makes financial sense to operate.
Again, a turnaround will prove crucial in finding new revenue streams and improving cost efficiency.
Poor satisfaction rates
Customer satisfaction is vital to gaining sales, building loyalty and improving your business reputation. If customers are dissatisfied with elements of your company, it may reflect falling standards or poor quality.
These may be the consequence of many things, including recent process changes, not having the right people in the company or becoming complacent. Over time, reduced satisfaction will likely lead to declining sales and poor customer retention. It also makes it harder to acquire new customers, which will have knock-on impacts on your revenue and profit.
High staff turnover
There are many issues with a high staff turnover.
Firstly, it leads to inconsistencies as the people in your business are constantly changing. Instead of employing skilled individuals who have the time to develop an inherent knowledge of your business and customers, you will need to reintroduce new people who start from scratch – making it hard to gain traction.
It also takes time away from running your company, instead leaving you to focus on recruitment. In some cases, you may be unable to fill the gaps, which could lead to poor quality.
Secondly, it indicates internal problems, such as poor management or low morale and motivation. These could lead to other issues, such as bad customer experiences or falling productivity.
You need to transform your business to attract and retain the best skills, as it will give you a much higher chance of success.
Declining demand
You might find that demand for your products and services is declining through no fault of your own. Some markets will shrink over time in response to changing customer needs or other innovative solutions that might drive demand to other industries.
If you are experiencing reduced demand, you need to review your value proposition. It might include finding new markets to target as part of a diversification strategy or adding new services and products to your portfolio. A turnaround strategy will enable you to do this.
Increasing competition
Competitors constantly threaten your company, but it should be manageable in most cases. It is dangerous if your market is becoming saturated or other businesses overshadow yours.
If a competitor is impacting your sales, it will affect your revenue and profit. It also suggests they’re offering something you can’t, such as better prices, higher quality service or alternative products or services.
You must uncover ways to transform your company to get ahead of your competition and give yourself a fighting chance.
Consistent failure to meet strategic goals
Your business should have a strategy you are following. It will underpin your value proposition and processes with the ultimate vision you are working towards.
If you find that you are straying too far from the plan or not meeting the goals outlined, it highlights that the strategy isn’t working. This will stall growth and prevent you from realising your desired results.
A turnaround will set you on a new path with a better strategy.
Conclusion
Understanding the warning signs that your company needs new direction is crucial to acting at the right time and limiting the negative implications.
Although a business turnaround may seem a huge endeavour, it is often essential if you want to turn a failing venture into a financially strong one. It can save your company and lead to prosperity for years to come.
If you want to know if a turnaround is the best option, speak to one of our expert advisors.
We will discuss your business’s needs and challenges to pinpoint a suitable route forward while helping you to raise finance to cover the costs associated with the turnaround.