Small business owners who are facing distressed companies – which may be due to unplanned rapid growth, lack of marketing, or runaway costs – are often not sure how to create a positive turnaround to keep their company from sinking. Here are tips to help you determine if your business is in distress, and, if so, what you can do to implement positive change.
The first step is to acknowledge that your company has a problem. If any of the following scenarios describe your company, your company is most likely in distress and in dire need or redirection.
- You worry about how you will pay your company’s bills, taxes, and employees
- Your business loans are facing default due to unpaid loans
- You are considering filing for a business bankruptcy
Once you have identified that your company is in distress, it is time to search for the ailments within your operations that are causing your company to get off course from the goals that you have set for success. Here are some common mistakes that small business owners make and tips on how to turnaround your distressed business.
You are too subjective to identify the true culprits
Consider hiring a business turnaround expert to come in and offer neutral advice as an outsider to help get your company back on track. Also known as leadership experts, business turnaround consultants can step in and meet with key staff to assess the company’s problems. A consultant can also offer essential leadership coaching to help managers and owners formulate a turnaround plan and commit to productive changes.
Often, a business owner can get stuck in certain behaviors and decision-making patterns – such as that of parent or peacemaker – making it difficult for the owner to make objective decisions for the benefit of the overall company. As outsiders, consultants can come in and help business owners identify their company’s problems from a different perspective and can offer proven strategies for correcting common mistakes.
You do not understand your company’s financial statements
Many troubled companies operate without accurate financial statements that the owner understands. Does the company controller understand accrual accounting? Are you carrying old inventory on your books that is inflating the value of your company?
Make sure your statements are current or accurate. Otherwise, you are basically operating like a football game without a score. You need to have an accurate account of what is coming in, fixed expenses, and true inventory value.
You are keeping money-losing customers
Money-losing customer sounds like an oxymoron, but there are such customers who place too many demands on your company’s time and are simply not worth keeping. Shed any customers who are taking up too much time or who try to negotiate prices that are not covering your costs. Consider that time spent on such customers could be better spent attracting and retaining more valuable customers.
You do not understand your operating costs
Do you know which products or services are boosting your bottom line and which ones drag it down? Do you constantly reassess your price points to determine where prices need to be raised or cut? Many failing companies mistakenly assume that they can make up their sales by increasing their volume. That is not always the case.
If you do not know or do not understand your operating costs, consider hiring an accountant or business consultant to help you calculate your operating costs and determine a reachable profit margin.
You do not have a clear business plan
A business plan should clearly define your company’s departments, a chain of commands, and well-defined job descriptions. Without a clear plan, your staff will not who to work with to resolve problems as they arise or who is in charge of handling certain operations. Clearly spell out your company’s delineation of authority and responsibility.
You are not conserving cash
How long does your company’s cash last? If you are constantly running out of cash, then it is time to reassess how you are spending money and set up a plan to conserve cash. Review your expenses and make sure you are not wasting your company’s precious resource – cash – on unnecessary equipment, staff, or advertising. When a business is in distress, cash can be the flotation device that keeps the business from sinking.
Sharpen your focus, tighten your company’s reigns, and set clear goals as a leader and for your staff to help steer your company back on the path you intended when you first opened for business. With a renewed determination, you can successfully turnaround your distressed company.