Some businesses are very resilient they can mismanage their affairs time and time again whilst the customers keep coming back for more whereas other businesses might be in a shrinking industry or a declining sector in which case any trip up might be fatal.
Business distress is a natural state of being just as our body ageing is the natural course of events for humans yes we can try and fight decline but we all know how the movie ends the knowledge I have looked to share in these posts won't change physics or make you live longer but will give a business a clean bill of health and several more years of vitality plus the strength and vision to fight future battles but let's face it the following challenges never go away in no particular order here is a list of potential pitfalls that scatter the field of business and human behaviour.
1. Failure to adapt. Despite popular misconception Darwin we never said “it was the strongest that survive but the most adaptable” the economy is always in change how we read and react to the change determines the longevity of our business.
2. Bad Luck. Some of my contemporaries might tell you there is no such thing as luck or you determine your own look or you make your own look or something quite hollow like that, but mention a factory fire, loss of health or several key employees or natural disaster and everyone acknowledges that bad luck exists and sometimes it finds you.
3. Undercapitalised or lack of cash not once over the years have, I seen a hopeful entrepreneur ask for enough money, a strong balance sheet will get you through the worst storms in business. In turnarounds luck tends towards the downside and you need to quickly accumulate the capital to survive those moments.
4. Lacking controls running a business can be more complicated than flying an aeroplane. So many businesses it's the lack of controls that gets them in trouble they simply don't see trouble developing and often misread the magnitude when they do the ideal formula for avoiding trouble in your business is relevant measurements data and timely accurate reporting followed by swift corrective actions.
5. Rising costs, this could be linked to rising prices in the market place the economy foreign currency exchange rates or just uncontrolled escalation of pricing from suppliers. Rising costs need to be fought aggressively and quickly and you need to find other ways to mitigate those costs, alternative suppliers, alternative products reinventing the supply chain if necessary.
6. Owner distraction, too many owner operators outstay their welcome and begin to enjoy the finer things in life as opposed to focusing on their business. So if the owner is off enjoying their first boat, their second home, or their third wife and they are no longer there at the wheel guiding the business, all it takes is the bank to notice that your off enjoying their money, your employees to notice and suddenly you're in distress.
7. Entrepreneurial stubbornness, your obvious ability to overcome obstacles has taken you this far but in a turnaround situation stubbornness can become a liability. Your customers, employees and suppliers may admire and support your stubbornness but your bank expects compliance and better results. Doubling down on the same old thing without taking professional advice will kill your credibility and eventually your business.
Warning Signs:
Yes, you should have seen trouble coming but you didn't. Looking back the warning signs were all there but often they were notice too late or the reporting was not accurate enough or detailed enough or the entrepreneur just failed to recognise their significance.
A list of common warning signs is:
1. Loss of key customers decline in new business proposals, declining sales pipeline, lower average sales price or a lack of new product development.
2. Declining gross profit margin expanding overheads increasing commodity prices shifts in the marketplace or foreign exchange rates and although unexpected rising costs.
3. Loss of key employees, increasing turnover not supported by cash position, losing key salespeople or key clients, changes in marketing strategy.
4. Owner distraction, loss of key executives, softening of the entrepreneurial spirit that started the business, culture issues or general complacency.