It is thrilling to start your own company, but having a great idea is not the only determinant of success in the long run. Most startups indeed experience high risks of failure. It is important to note that challenges are inevitable and as a startup, one will have to deal with them regularly. More often than not, such challenges are, and to overcome them, sound advice and decision making is crucial.
If you suspect that your business is on the road to failure? And if you are to join or invest in a company that is on a downward spiral? Here are the signs to watch out for:
1. Excessive Overhead
High overhead is a strong warning signal that the business is likely to fail, especially when it paints a picture of cash flow problems ahead. Overhead costs are known to be dangerous because they can easily gobble up all the revenues and profits. It is a business saying that companies today must do more with less than ever before; those who continue to maintain overheads that are old-world and lavish are bound to fail.
2. Serious Cash Flow Problems
Working capital refers to the amount of funds that are generated and used by a business, known as cash flow. Some of the causes of cash flow difficulties include poor debts (unrecoverable debts). Signs of cash flow issues include:
- Failure to meet financial obligations or expenses that are not foreseen results in borrowing accumulation of more debts and poor liquidity.
- This is because cash is important to a business for its short-term needs, even if the business has a steady source of income in the future.
- This can cause credit issues and build tension with creditors if payments are not made on time or not made at all.
3. Maxed-Out Credit
If all your credit cards have been swiped to the limit and no bank is willing to give you a loan, then you are likely to be on the edge. Although debt can help one get rich, not being able to meet the minimum payment and using credit to survive, is an indication of distress.
Only borrow when you can cater for the interest and pay the debt back. Otherwise, you will remain in the cycle of debt that you can never repay or get out of.
4. Key Customers Are Leaving
The 80-20 rule (80% of your results come from 20% of your actions) also applies to customers: The 80/20 rule can be applied to customers where 20% of the customers contribute 80% of the sales. It could run into serious problems very easily if it lost some of these customers.
Attempt to regain the customers who have slipped away and visit those who have not yet defected. Focus on the side of the customers who are leaving before targeting new ones, who may leave due to similar reasons.
If you learn to identify these signs early enough and take the necessary precautions, you stand a better chance of handling them and directing your business to the right path.
5. High Employee Turnover
At times, employees may even wake up or discover an issue before the directors do so themselves. It may be as simple as not getting their wages or something as complex as they no longer have faith in their employer.
Here are some negative impacts of poor employee morale and, in turn, a high turnover of staff:
- High recruitment and selection costs- an Oxford Economics report revealed that replacing a staff member costs an employer £30,614 per employee. The two main factors that make up this cost are the cost of lost output while a replacement employee gets up to speed and the logistical cost of recruiting and absorbing a new worker.
- Loss of talent and successors in the business.
- Other employees may be reluctant to work for you.
- Reduces productivity and efficiency within the business.
In addition, if you don’t have business insurance, you’re not just putting your business at a huge risk but also your employees. To avoid such risks, most businesses take insurance policies to ensure that they are protected under insurance covers, which comprise standard turnover and affected turnover periods.
6. There’s Nothing Unique About Your Company
This means that your business has to compete with other businesses, and therefore it is essential to have a unique selling point. However, perhaps the very thing that sets your company apart in the first place may not be true any longer.
Here are some factors that could affect your business:
- Your company refuses to pay attention to the customers and how their demands are evolving.
- Your business may not have identified a gap in the market, or it may have lost sight of one.
- Since you are partial to the business, you are hopeful that things will improve. What is important is an open-minded and progressive outlook.
- Lack of consumer interest in the product or service (competition might be too stiff).
- Your product or service is not priced appropriately anymore.
7. One Problem After Another
If you are getting the impression that things are just going wrong one after the other and there is no respite this is the best signal that there is a major breakdown at the core operational level.
Of course, every business owner has issues, and like negativity from customers, it comes with the territory. But you should always strive for things to be as smooth and as efficient as you can make them. When you’re having a problem after a problem, it’s like having a clog in the machine. And if you don’t address it soon, it will get worse to the extent that you are stuck and cannot move forward at all.
Terms like process, procedure, and documentation may seem quite uninteresting but it is these things that make successful companies tick. Spend some time correcting the things that go wrong in everyday business before concentrating on growth and sales or those sales will not be sustainable.
8. You Don’t Have Passion for the Business Anymore
The reality is, that people do fall out of love very often. And we are not talking about it romantically. It is possible to be very enthusiastic about an industry or a business and become bored with the industry after some time of working in it.
No, it is not something that you have to feel guilty about. And no, it’s not something you should grit your teeth and push through. If you no longer feel the love and passion for the job, then it is time for a vacation or retirement. The best businesses are operated with passion. It is the spark that ignites the flame if you will. And without it, your dream will turn to ashes.
It is not very encouraging to work for the business when things are not going well. Try to see if you can mend the business, and then the days are not so terrible when things are going well. And if you still decide to leave, at least you can do so on your terms not because it all fell apart.
