If your business is struggling, it is vital to be able to take quick preventative action to minimise the impact and find a solution. Being able to move quickly means being aware when the risk of failure presents itself.
There are a number of signs associated with a failing business that indicate you need to act. Even if your company is in a good position, it’s well worth being aware of the indicators to look out for so that, should the worst happen, you are able to pick up on the signs and intervene swiftly.
Below, we have listed the most prominent signs that your enterprise is in trouble and what they could mean.
- Falling profit & revenue
- Increasing costs
- High staff turnaround
- Cashflow issues
- Fewer sales
- Less customer satisfaction
- Reduced market share
Falling profit and revenue
One of the most significant indicators of a failing business is falling profit and revenue. Revenue outlines the amount of income you have received from sales, while profit is the amount left over once all cost of sales and overheads have been deducted. If either reduce on a sustained basis, it could indicate your sales are in decline or that your operational costs are out of sync with the demand you are experiencing.
If you are witnessing falling profit or revenue, it is vital to take a historical view of your accounts to make sure it is an actual issue and not just as one-off fall. For example, some businesses may see falling revenue in particular seasons depending on their products and services, which rises again a few months later. You should also consider the context around that month’s accounts, as external factors could result in falling profit, though it may pick up again once those factors have passed.
Increasing costs are often associated with growing enterprises who are investing in new processes or expansion of their operations. While this is true, rising costs can be a red flag if they are not linked to increasing sales.
Increasing costs over time could signal that you need to review your costs of supplies, your staff costs are becoming bloated or that you are absorbing other additional fees. As such, it is vital to track these outgoing costs regularly and audit them to remove any that are unnecessary. By doing so, you will be able to streamline expenses, improve efficiency and make sure your sales and costs are aligned.
High staff turnaround
Another sign of strife in a company is a high staff turnaround. This is for two reasons: firstly, staff turnaround could indicate a dissatisfied workforce, indicating there is an internal issue. Secondly, it means that there are constantly changing personnel dealing with your operations, which may lead to inconsistent quality. If the turnaround affects your leadership team, it could mean the visions and values of your company end up shifting, making it harder to align your processes.
When experiencing staff turnaround, be sure to undertake measures such as exit interviews to find out what the common issues are and identify potential fixes. You should also clearly communicate to your staff – new and existing – to make sure everyone remains on the same hymn sheet, even if the faces in your company are different.
Problems with cashflow in your enterprise are yet another indicator of trouble. Increasing costs and reduced revenue can both cause cashflow headaches, so if you see issues – such as missed payments – it could highlight a bigger problem.
Cashflow issues also quickly snowball. Having working capital to use in your operations will allow you to fund supplies, pay bills and keep processes running smoothly. If you are struggling to meet the expenses required, it may disrupt operations, leading to falling productivity and inability to meet demand. If you miss payments, it could translate to increased debts, which will harm your company’s credit score in the future.
Fortunately, there are many cashflow management options out there that will enable to free up capital and alleviate the strain. By utilising these options in time, you will be able to minimise the cashflow impact.
When profit is falling, it may stem from a lack of sales. As such, it is vital to keep track of sales your business is experiencing as these often illustrate the demand you are facing and how effectively your channels – such as marketing – are working.
If sales are down for a month or even a quarter, it could be due to seasonality. However, if they are consistently decreasing, it may indicate people are becoming uninterested in your product for some reason. This includes fewer new customers coming to your business or your existing customers spending less when purchasing from you.
If you have a sales team, it is worth talking with them to find out any challenges they are facing when attempting to sell. Challenges could include concerns about product price or quality, the rise of competition or dissatisfied customers. By understanding these barriers, it will help you to identify the cause of falling sales and find appropriate actions to boost them.
Less customer satisfaction
Even if your sales are growing, reduced customer satisfaction could be problematic for your company. This is because it suggests an issue with your business in some form: poor product quality, perceived overpricing, negative customer experiences with service and so on.
Further, falling satisfaction could harm your reputation, with customers less likely to recommend you and more likely to warn others away.
As such, it is essential to check the appropriate channels – such as social media, review sites, PR and via your customer service team – to determine if the dissatisfaction is growing and what common complaints are emerging. By doing this, you will be able to identify issues and make appropriate fixes, with the aim of increasing satisfaction.
With happier customers, you will then enjoy a better reputation, more loyalty and increased word-of-mouth marketing – all of which translate to increased sales.
Reduced market share
Another factor to track when determining the performance of your business is your market share and overall position. A reducing market share suggests that either your existing competitors are growing, or that new competition has entered the market, detracting from your own share.
A reduced market share is troublesome because it indicates that your existing customers may be switching to alternative providers or that you are not attracting new customers coming to market.
If this is the case, it could indicate you need to put measures in place to prevent your business from being completely overshadowed by your competitors.
If you see one or more of the above indicators, it could highlight that your business is at risk, especially if they appear consistently. However, noting the signs ahead of time will mean you have the opportunity to reverse them. By taking the appropriate action, you may prevent that risk from turning into total disaster.
If you have concerns about the state of your enterprise, our team of advisors can provide independent advice. We have expertise working with and turning around businesses of various types and sizes, so we are able to offer bespoke support for your needs.
Get in touch today to find out how we can help you.