By Paul Arsenault
How often have we told ourselves: Our business is just in a slump, things will pick up. Are we really in a slump or slowly going sideways?
At times, we see signs that should send up a red flag. Then we tell ourselves, business everywhere is slow. We get used to the slowness, like a couple of pounds we’ve added to our waistlines.
Do you have blinders on that prevent you from seeing impending danger to your business? Let’s examine some of the classic symptoms an entrepreneur experiences when a business is failing.
Discounting your competition.
You should always be aware of what your competition is doing in areas such as pricing, marketing and changes in strategy. However, you need to base your business decisions on your own research and planning, not on what the competition is doing.
Watching current shipments and not future orders.
If you fail to monitor future sales commitments along with present sales, you will be unable to spot any downturn in business. You will lose the ability to make necessary corrections in your marketing strategy.
Confusing orders with shipments and invoices with receipts.
This is the classic looking into the future and ignoring the harsh reality of the present. This symptom is a common excuse used by business owners to explain their lack of cash.
All I need is more money.
I have heard this excuse from almost every business owner I’ve worked with. Lack of cash is generally a symptom of other problems within the internal workings of the business, problems such as poor management of accounts receivable, pricing, inventory, asset purchases and accounts payable. There is an exception to this rule, when a company is experiencing rapid growth, it tends to require large amounts of cash to support that growth. This could be considered a good problem. However, it is just as dangerous. High growth companies with tremendous potential fail every day due to a lack of cash.
Do any of these symptoms sound familiar? If so, take the time to examine the performance of your business in the last 12 months.
To do a quick acid test of the business, ask yourself the following questions. Has your gross profit been slowly deteriorating? At the very least, your gross profit should cover all your fixed expenses in addition to your debt service. Find out the average gross profit for your particular business or industry. You should be able to obtain this information from your CPA. or local Small Business Development Center.
Do you have a cash flow problem? If you are having difficulty meeting your day-to-day cash obligations, this may be a symptom of a much larger problem.
Has your return on investment been at least adequate? Is what you have invested in your business such as capital and fixed assets providing at least the same return you would get in a passbook savings account at a bank.
Asking yourself these questions and finding the answers is a good start to keeping your business on the profitable path.
Whether you are a small business or a large corporation you will succeed in the same way. Know the business you’re in and tend to it each and every day.