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Reading, heeding the warning signs that your
business is in trouble
By Jenny
C. McCune Bankrate.com
To avoid disaster, sailors know to look for signs
of trouble. Wispy clouds called horses' manes. A drop in barometric
pressure. An iceberg.
To keep their companies afloat, small-business
owners need to do the same thing. Here are warning signs that your
business is in trouble and what corrective action you need to take
-- including shutting down or selling out:
Financial harbingers of stormy weather
- Sales are falling.
- Inventory is increasing.
- Profits are decreasing.
- It's taking longer to get paid.
- The cost of producing goods or services is
rising.
It's important to look at financials within
a context, says Marcia Layton
Turner is the Rochester, N.Y.-based author of
The
Unofficial Guide to Starting a Small Business. "It
has to go beyond seasonality," she says. "If your sales dip every
fall, then that's not a problem." Compare numbers against prior
months and against last year's financials. "It's when there's a
steady slope downward that you know that you're in trouble," Turner
says.
Other indicators of bad weather
- Customer comments or complaints are up. Customers'
moods and actions can indicate how your business is functioning
or malfunctioning, says Gene Fairbrother, president of MBA Consulting
in Dallas.
- Customers are in financial trouble. If your
company catches their bad-times flu, it can have a disastrous
impact on its health.
- Key customers stop buying from your company.
"If people stop frequenting your business, there must be a reason,"
Turner says.
- Employees are deserting your firm like rats
jumping from a sinking ship. A spike in employee turnover can
indicate there's an underlying problem.
- Employee morale is down. If all your workers
are down in the dumps, there's a reason why and it probably has
something to do with their workplace, Fairbrother says.
- It's taking longer for your company to manufacture
items or produce its services.
- Your heart's not in it anymore. If you're
suffering from burnout, it may be time to take time off or even
sell your business and start anew, says book author Turner.
When to hold, when to
fold
Some of the warning signs listed may look ominously familiar. Question
is, what should your company do?
First, examine the problem. Things to consider:
How severe is the situation? Can the problem be fixed? Is it so
big or unsolvable that it makes sense to move on? Does the problem
lie within your company or outside of its and your control?
Timing is another issue. Catch a problem in
its infancy and your company stands a chance of turning things around.
But if things have been bad for a long time, it may be too late
to do much. It's like cancer. Treat it early and you can be cured.
Wait too long, and the prognosis is poor.
For example, a modest dip in sales or profits
can be rectified. "But if your bank comes to lock your doors, there's
probably no clearer sign that you should probably pull the plug
on your business," Fairbrother says.
If your business can't be saved, your best option
is to try and sell it immediately to one of your competitors while
it's still worth something.
If you believe that it can be salvaged, take
immediate and drastic action. Trim costs and boost sales. Don't
act in a panic, though, and don't spend too much time analyzing
the situation. Ask for help and advice from advisers, your customers
and your employees. One tip that Fairbrother offers: Set up "drop
dead dates" -- financial or other milestones that your company must
hit in order for you to proceed with the turnaround plan.
Nobody ever wants to be in a position of pulling
the plug on a company you built from scratch. But it's better to
figure out sooner rather than later that it's time to cut your losses
or proceed to the next deal.
Jenny C. McCune is a contributing
editor based in Montana
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