Ernest Hemingway said it best when he warned of how financial troubles visit us: slowly at first and then all at once. There are usually warning signs, but they are not always recognized and they may persist for months, or even years. Business owners sometimes go into denial about regularly occurring mid-month cash-flow problems, for example, if at month’s end the bottom line looks healthy.
Generally, corrective action can be taken to head off an impending disaster and other times, the crash is fated. Still, forewarned is forearmed and taking steps to protect the business enterprise is always the right thing to do (as long as one does the right thing!). Presented here is a list of early warning signs that indicate all is not well in your business venture:
1 Flat or declining sales revenue or profits
2. Unreliable cash-flow: difficulty in covering payroll, accounts payable, or payment to sub-contractors or vendors
3. Prices reduced to stimulate sales
4. Critical business investments cannot be budgeted
5. Repeat business is declining
6. Leads are dwindling or the sales conversion rate is shrinking
7. Referrals are declining
8. Inability to keep pace with growth, operational systems are overwhelmed
9. Inability to fulfill promised deliverables on time
10. Client complaints about the quality of products or services
11. Invoices not issued as scheduled
12. Working many more hours just to “hold on”
So what can you do? First, be vigilant about detecting warning signs and pay attention to the client list, conversion rate of leads, referrals and the amount of repeat business. If those values begin to trend downward over the course of a year, investigate the matter and plan a response.
Do you have a new competitor? Might you need to upgrade customer service? Should you step up networking? Or do you need to update your marketing message and sales pitch to better reflect client priorities?
Declining sales revenue and cash-flow issues might be at least partially remedied by sending invoices on time, or increasing the down-payment that clients are asked to pay when a contract for services is signed. Declining revenues and/or profits also indicate that you might rethink your products and services and as well how you package and present them. You may need to increase prices, if expenses are cutting too deeply into revenues and profits.
If repeat business and/or referrals are noticeably weaker, networking to renew your relationships and meet new prospects might do the trick. Figure out ways to stay in contact with former and current clients. If you haven’t been sending holiday cards in December, make a note to look into the process by the end of October. Send congratulatory emails to clients if they achieve a victory that is made public. Reinvigorated marketing and PR can also be a useful defense, including content marketing. Moreover, it may be time to start a monthly newsletter, to show your client and referral bases why you are still relevant.
On the other hand, maybe you’re experiencing too much growth too quickly and you lack the infrastructure to successfully manage your good luck? Get ready to spend money to hire the right help and make systems or technology upgrades ASAP, to cure whatever problems exist in product or service delivery. You are only as good as your reputation and word of problems travels very fast.
Finally, console yourself with the knowledge that every organization must eventually respond to change and that will mean doing things differently and taking on risk by plunging into the unknown. How one responds to change is a test of leadership ability. Be brave and face it down by first conducting an analysis of your business environment, competitive landscape and client priorities and then developing strategies and action plans designed to save the day.
Thanks for reading,
Kim L. Clark is an external consultant who provides strategy and marketing solutions to for-profit and not-for-profit organizations. Kim is the founder and principal of Polished Professionals Boston and she teaches business plan writing to aspiring entrepreneurs. Visit polishedprofessionalsboston.com for more information.