7 Signs Your Business is Going the Way of the Titanic & How You Can Avoid the Rocks

This morning I received an email from someone who is trying to save his floundering specialty gift store. As I read through the message, I just kept shaking my head from side to side; I’ve heard this same kind of story countless times.

 

It’s amazing to me. Different people, in different parts of the country and different kinds of businesses, but the patterns are the same. Even the words and phrases these business owners use to describe their struggles are strikingly similar.

The minute a business owner starts fitting the pattern, I can usually tell what will come next, and unfortunately, it ain’t pretty.

It just dawned on me today that I should write it down so small business owners (and their friends and relatives) can recognize the pattern for themselves. To that end, here are the telltale signs that your business is headed for the rocks real soon. If you are a small business owner or have a relationship with one and you can identity with many or all of these characteristics, then know that the business model isn’t working. It will need to be changed ASAP to avoid a disaster. If, however, you find yourself identifying with only one or two of the signs below, don’t panic. In such a case, a few simple changes may be all that’s needed to make things better.

Seven Characteristics of a Failing Business

1. You are pouring your savings or retirement funds into your business to keep it afloat. While there may be a time and a place to use personal assets to fund a business, in this case, it is only prolonging the agony while depleting the business owner of his or her nest egg. It is my experience that personal assets should never, ever be used to cover daily expenses. If it happens on a rare occasion. OK. But if you find yourself constantly raiding your personal accounts “till sales pick up,” then sound the sirens. You’re entering dangerous waters.

To stay in business, you will either have to find a way to reduce expenses or increase your revenues. You may also need to consider financial tools like business lines of credit and accounts receivables financing to help smooth out your cash flow.

2. You have no way to pay off your recurring overhead expenses, such as rent, utilities, and payroll. Following on the heels of the point above, if you seem to always be hurting for cash, the bills are piling up, and you can’t keep your head above water, then it’s time to stop and take a look at where money is coming in and going out of your business.

3. You are slashing prices and running promotion after promotion in an attempt to reel in customers. Drastic cost cutting and fancy promotions will not, by themselves, cover up a flawed business model. In fact, they can make the situation worse, by draining precious resources, and giving you the false security that you are actively doing something to increase business. Make sure you are monitoring your price structure and how it ties in to your profit margin, and pay attention to your promotional activities. If they aren’t leading to increased sales, then they aren’t worth doing.

4. You have customers and business-minded people telling you that your business isn’t working. If you keep hearing the same message over and over again from customers and colleagues that something is wrong with your products, services, or location, etc, then the worst thing you can do is ignore it all. It is a strong indication that at least a part of your business model is flawed.

5. You don’t know where your unique selling point is. You have plenty to say about your competitors, but when it comes to what you uniquely have to offer your customers, you go silent. Every business needs to know what sets them apart from the competition even if it is a perceived difference rather then an actual one.

6. In explaining why business hasn’t been so good, you only pick out external reasons. Owners of the worst business setups often have trouble owning up to the problems inherent to their businesses and the way they are running them. Instead, there’s just a whole lot of finger pointing: “My big competitors are using their economies of scale to slash prices…”, “People just won’t stop by my shop and buy something…”, “The banks won’t give me a loan…”

Even where a gripe is legitimate, if you are using it (whether consciously or unconsciously) as an excuse to throw your hands up in the air in hopelessness and frustration, then you can start writing your business’ obituary. Rather, try to use this time to figure out where any key problems lie and what your options are for fixing them.

7. You are constantly anxious. Incessantly worrying about how you will bring in more customers and pay the bills, is never a good thing. Not only will you be putting yourself at greater risk for burnout, depression, and stress-related health problems, but your anxiety will affect the business, rolling off onto customers and employees. This will only worsen the situation. If you find that your passion for running your business seems to be missing, then you need to stop and take stock of your current situation.

In short, the above seven characteristics may point to some fundamental flaws in your business. If you see them, then brace yourself; it will take some big, but vital changes, to keep your business afloat. Even if you choose to walk away from your business, being real with your situation can prevent a disastrous crash down the road.

Comments

  1. Procurement Books says

    It’s really disheartening for a business owner if the venture starts to fail. When all efforts are made but everything just seems to be going south, it’s very hard not to be frantic about it.

    Some small business owners think that if they increase their capital expenditures in an attempt to expand business, their company will be magically saved. Little do they know that when they decide on procurement, they have to be financially ready. It would be more beneficial to filter out the problems within their business first before deciding to make this move forward.

  2. Adam Gottlieb says

    I’ve seen two main kinds of negative reactions among the owners of struggling businesses:

    1. Massive denial or disconnect from what is actually happening to their business and their own assets. Here there’s a kind of malaise and inaction even though their business is about to fall off a cliff.

    2. Panic. In this case, the business owner often goes on a buying spree or a promotion blintz to attract new customers. The problem is there are typically not enough resources available to make these kinds of moves, and often these efforts don’t increase sales anyway.

    In both cases, business owners bring about the end of their businesses much quicker.

  3. says

    Thanks for some reminders Adam!

    Failing is just a factor of growing up. But if we try to avoid it, we can do so. What you have listed are very helpful particularly to those “newbie” in business. I can say that all mistakes and failures can be avoided, if not it can be minimize, if you laid it all well.

  4. Adam Gottlieb says

    Unfortunately, I’ve even seen some “veteran” business owners make these mistakes. Sometimes it’s easy for people to be in denial regarding their situation in life and that includes how they are running their business.

  5. says

    Hi Adam,

    These are great reminders for someone who is already in business as well as a good guidelines for someone is just starting or planing to start one.

    I agree with what you said in your previous comment, some veteran owners make these mistakes. At first they could be in denial like they would get some money from their retire funds to infuse into their business when it doesn’t work, they would get some more money and again and again…

    These are indeed some things to watch out for. Thanks for these great reminders!

  6. Adam Gottlieb says

    The “money-spiral” is a hard one… and the biggest problem is that most people don’t “wake up” to what they are doing until it’s too late.

  7. says

    One thing I have seen happen a lot is businesses promoting heavily upfront, they get business or sales coming in and then they decide to stop marketing for some reason. A few months later and they are back to square one instead of growing.

  8. says

    I’m not sure that a line of credit or factoring receivables solves the problem. All you’re doing is playing a shell game. If there are receivables that you can match against your personal equity contribution, and it’s effectively a bridge loan from yourself to your company, then that’s fine. However, establishing a revolver just to pay your daily expenses is only delaying the problem, and it certainly doesn’t solve the core issues.

    I’ve been there; I remember altogether too vividly depositing checks to make payroll in my previous company. It’s a place nobody wants to be.

    One suggestion I’d make it establishing a drop dead date and measurable metrics to decide whether or not to shut down your business, such as “if I don’t have $X in sales in 3 months, I’m going to shut down the business.” If you’re following an unsuccessful plan, there is no point in throwing more money at the problem. Otherwise, you’re living the Einsteinian definition of insanity.

  9. Adam Gottlieb says

    I think in this case, the owners assume that via word of mouth, they’ll get more customers, and also that they’ve created such a memorable product or service that people will keep coming back. It’s not always the reality though; a business needs constant care and maintenance- especially when it comes to marketing.

  10. Adam Gottlieb says

    Hi Jason,

    Regarding lines of credit/factoring receivables… I’ve seen several cases where it worked very well. It’s all in how the business owner is using these tools. Using the receivables as a “loan” to yourself is very risky because the reality is that not all receivables will be collected in full and on time.

    Regarding the “drop dead date” I think that’s a great idea. Just business owners should keep in mind that their goals and time frame should be doable and that they are using that time to make productive efforts to turn the business around- not just spinning their wheels in the same rut.

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