As Business Owner you have spent most of your professional life building business from ground zero to realize your original MISSION & VISION to EARN MONEY AND GAIN PROSPERITY. You have EARNED high revenues and you are successfully meeting your monthly targets.
Efforts do not always yield expected results. Consequently, quite a dismal picture is reflected in your bank account.
Total alertness and vigilance in business are always warranted.
Symptoms of make-or-break keep raising their dirty heads time and again.
Business prudence lies in the diagnosis of such symptoms well in time. This constitutes a key to survival in business.
It is imperative for the alert Business Owner to be watchful of Warning Signals to business.
In this context, it is worthwhile considering the Top 5 Warning Signals for Business.
1. SLIPPING PROFIT MARGINS
An early warning sign seen is slipping gross and net profit margins.
It is hard to identify whether the correlation between profit and sales is changing.
It is important that this is analyzed as a percentage of sales.
If the gross profit margin percentages and the net profit margin percentages are slipping, then this could be considered an early warning sign.
HERE HOW DO YOU ACT?
ANALYSE YOUR COSTS VS SALES.
The main point that impacts your gross profit margin is cost.
In many cases, sales are staying the same or even increasing but the costs are also increasing.
This can be due to
- Incremental price increases by your suppliers.
- Inefficient labour.
- Underutilized service staff or even mistakes in book-keeping.
Ensure you are analyzing your Costs vs your Sales to keep on top of these margins to avoid losing profit.
2. RAPIDLY DECLINING (OR INCREASING) SALES.
Rapidly declining sales are a killer for businesses.
If costs and overheads are not adjusted to reduce at the same rate as sales it can cause many financial issues when it comes to running a business.
On the flip side, rapidly increasing sales is not always a good thing if you are not managing your cash flow in line with your increased sales.
The more you are selling, the more you must buy.
If you are ignoring the fact that your labour costs are increasing and you are out of pocket for that before you invoice, then that can cause a serious cash flow squeeze.
NOW, WHAT DO YOU DO?
FIND OUT WHY
your sales have declined rapidly and identify whether or not the decline will be a long-term trend or a short-term issue.
If you find that your declined sales are a long-term hurdle you need to quickly reduce your overheads to account for a drop in sales.
BUT HOW?
Try not to lock yourself into a long-term office space lease.
You must opt for outsourcing versus full-time staff on wages.
If the business has debt, start communicating with the banks to reduce your interest rates and repayments.
3. MOUNTING PRESSURE FROM SUPPLIERS
Most small business owners do receive the dreaded “where’s my money” phone call from their subcontractors and suppliers.
If you are not able to pay your obligations on time it will lead to a massive pile-up of debt.
Failure to pay may invite serious legal action against you.
HOW TO OVERCOME THE CRISIS?
NEGOTIATE BETTER TERMS WITH YOUR SUPPLIERS
Have an honest discussion with your suppliers and see if you can negotiate better terms with them.
More often them not, business owners feel that they just have to accept the terms that their suppliers offer them.
However, you must recognize your value to your suppliers as a customer.
Create a competitive environment and help them appreciate there are other suppliers you may be able to work with.
If they are not willing to negotiate on their terms move on to plan B.
4. SLOW PAYING CUSTOMERS
When your accounts receivable does not recover money fast enough to cover your accounts payable, it creates a situation where you are constantly falling behind, month after month. If you persist, it is just nearly impossible to avert roadblocks in business.
WHAT IS THE SOLUTION?
GET PAID FIRST, AND PAY LATER.
Invoice fast and create payment terms with your clients that are shorter than the terms you agree to with your suppliers.
Many businesses tend to receive money later than they should.
Half the time it is because they have agreed to terms that do not benefit their interests.
5. UNDERUTILISED SERVICE STAFF
More often you are Paying Wages for staff that is sitting around in the office with not enough project work.
THIS IS THE RECIPE FOR CREATING HAVOC ON YOUR CASH FLOW.
If you find that the average employee should be billed out at 40 hours a week, and you are only able to bill 32… who is paying for the other 8?
Do that every week for a year, and you are losing out on 45-50 days.
Repeat for more employees, and you have a problem on hand which may play havoc to the business you have so carefully nurtured all along!
WHAT IS THE PALLIATIVE?
‘FIND AND REPLACE’ NON-BILLABLE HOURS
Analyze where your staff members spend their time on average each week.
If you find that your service staff – who are often the highest-paid members of staff – are spending hours on things such as basic administration, low-level communication, and basic repetitive tasks, then, you need to employ someone with a lower hourly rate to have all of this work delegated to.
This will then free up the time of your billable staff to allow you to close more businesses to fill their time.
But if there is not enough business on hand consider retrenching a billable employee and divide their workload among the others.
The main point here is that you are paying them well, so use them wisely.
WRAPPING UP
Business and its growth are quite exposed to vulnerabilities. It is, therefore, always prudent to alert business owners to remain well prepared to combat any contingent challenges that may emerge during the life of the business. If yes, survival in business becomes that much easier and of course, a bit comfortable too!!!
” Great things never come from comfort zones”
Job Monkey
