And What You Can Do About It
Failure is the biggest fear for any small business owner.
You started your business to live your dream of financial freedom and success. But fear of failure can be a constant worry. It’s no wonder, given the odds of how often businesses fail. Only 55% of new businesses started will survive up to five years.
You’ve poured your heart into your small business and don’t want to be another failed business statistic. It can be difficult to run your daily operations while trying to stay focused on future growth at the same time.
Businesses don’t shut down suddenly, without any warning signs that things aren’t going the way they should. How do you know what to look for so you can right the ship before it’s too late?
1 – Consistently Low Bank Balance
At the end of the day, it is all about the money. You can’t have a business without it.
A big warning sign is not having enough money in your bank account. Not just a low balance for a short period of time because you’ve had some big expenditures recently, but having a low balance on a regular basis.
How to Prevent: Study your numbers every day. Know what money should be coming in and plan how to spend it wisely. Always have a plan to keep a cash cushion in your bank account to get you through lean times.
2 – Customers Taking Longer to Pay
Some business models have the option to allow customers to pay over time, which is attractive to your customer base. The downside is it can make it harder for you to take care of your cash needs.
You do have the option of charging interest and late fees to those customers who don’t pay on time, but you still have to deal with the risk associated with delinquent accounts. When too many customers aren’t paying timely, you need to take action.
What to Do: Take a hard look at your credit terms, make collection calls more frequently, and be more conservative when offering credit. Consider asking for a larger percentage of money up front. There are options available for businesses to borrow against accounts receivable to help cover costs until payments return to normal.
3 – Maxed Out Credit Limits
Have you maxed out your credit cards? Are you having trouble making the minimum payments each month? Both of these problems are definitely signs you’re not headed in the right direction. If you have already used all your credit available it is highly unlikely a bank will lend you money.
Having debt in your business isn’t a bad thing if done the right way. Don’t use all your personal or business credit cards before you consider getting a loan. Get a business line of credit or a small business loan with manageable payments before you resort to credit card use.
How to Avoid: Don’t get trapped in the cycle of high interest rate credit card debt while only making minimum payments. Revolving credit card debt can be a vicious cycle that takes years to overcome. Look ahead to your business needs and see if a bank loan is the right way to manage your cash flow.
4 – Late Payments
If you can’t pay your vendors or employees on time, then you really are in trouble. Most likely you are late with your payments because your customers aren’t paying you timely either.
Like revolving credit card debt, constant late payments are a nasty cycle that can be hard to break. Once you fall behind with your accounts payable you are on the receiving end of collection calls and interest charges.
When you can’t meet your payroll timely, it’s likely you won’t be able to keep quality employees. You also risk receiving legal notices from regulatory agencies, such as your state labor board.
Ways to Handle: Reach out to vendors while you still have a good working relationship and ask about terms that will work for you both. Try to avoid paying anything with credit cards until you have the income coming in to handle all your payments.
5- Sales are Slowing Down
Your sales have dropped and you aren’t a seasonal business. This should be a huge red flag if it continues for too long. Most likely, this is the reason for your unhealthy bank balance and late payment problems. A lack of sales will have a devastating snowball effect on all aspects of your operations.
When this happens to your business you must do some serious research. Are there new competitors that are offering the same product or service? Are they providing your customers more for less, or better quality products or services?
Be Proactive: Stay ahead of your competition by studying the buying habits of your customers. Understand what would cause them to frequent your business less. This could include how they react to different pricing structures, the quality of your product or service, and what your competitors have to offer. Don’t be complacent. Strive to be innovative and stay ahead of market trends in your industry.
6 – High Employee Turnover
The importance of quality employees in your business cannot be stressed enough. They provide you with valuable help so you are able to focus on growing your business. High employee turnover is not just bad for your productivity, it’s also bad for customer satisfaction.
Keep your employees engaged with your business. If you are experiencing trouble, they will notice and employees can be a vital source of information. They may have some insight on customer issues and other things going on in your community that affect your business.
How to Solve: Try to hire people who are a good fit for your business. Manage employees the way you would like to be managed. Provide good training and have reasonable expectations. Consider your employees an investment for the future of your business. Investing in your employees increases the odds they will help you succeed.
7 – The Enthusiasm is Gone
The fear your small business is failing will drain all the excitement and enthusiasm you once had as an entrepreneur. Constantly putting out fires will quickly lead to burnout.
You dread getting up every day and struggle to keep going. How can your business survive when you’ve lost your passion?
Don’t Lose Hope: Act quickly and take the necessary steps to turn your business around. Once things start to improve, you may begin to regain some of the passion you had when you first started. However, if you choose to close your doors, do so on your own terms. Most successful people had many failures before they found what worked for them.
Need Help for Your Business?
If you are having trouble in one or more of the areas discussed in this article you should take immediate action!
Don’t wait until it is too late to get the help you need for your small business. Reach out to [email protected] and schedule a free consultation to help you get back on the road for success!