Is Your Business Failing? Spot These 13 Warning Signs and Learn How to Fix Them

Owning a small business represents risk.  It represents a lot of risk when everything you own, including your home, is collateral against your business liabilities because you signed personal guarantees on your leases and loans.  You protect the assets of your business and your equity in your business by having a working understanding of the most common fatal flaws in business.  You best protect your business by knowing which fatal flaw your business is most at risk of violating.

Once you know where your business model is most at risk, you can protect your business from ruining your life by discovering what not to do.  Below are the most common mistakes that kill small businesses:

1. A deficient business plan means you have no business plan. A well-thought-out business plan forces you to think about the future and the challenges you will face.  It forces you to consider your financial needs, marketing and management plans, competition, and overall strategy.  You know you have a viable business plan when you realize the goals and vision you laid out for the next twelve months.  Fail to have a business plan, and you operate your business model via the hope method.  That is, you hope your costs will be less than the sales you bring in.  Fail to keep your costs below the cash you collect from sales, and you will go out of business.
2. Competing on price against a national competitor’s economies of scale is no business model. Price is the intersection of what the buyer will pay and the amount the seller is willing to accept.  It is the foundation of a commercial transaction that large businesses have mastered.  Fail to change how you compete against a business with an economy of scale advantage, and you will go out of business.
3. Offering too narrow to attract a large enough customer base leads to a failed business model. Clinging to one product, one service, or one anchor client because it brings in good revenue is risky.  When that one thing becomes less desirable, or you lose that anchor customer, your business will go on life support.
4. Poor cash flow occurs when you spend more money than you can afford because of inadequate sales, faulty budgeting, and poor planning. The number one law in business is when you are out of cash; you are out of business.  The fastest way to violate this law is not to update your business model when poor cash flow exists.
5. Inadequate sales or an overly optimistic revenue plan lead to the same business model problem.  Fail to generate sufficient sales to cover the cash flowing out of the business robs you of profits and drains your cash reserves.  Too many businesses are structured to achieve a defined level of sales.  Fail to achieve the required sales is always a problem.  Fail to have the speed to adjust your business structure when revenue is less than planned, or it takes longer than planned to convert to cash means you will burn through cash reserves.  Run out of cash, and you will not have a business to run.
6. Undercapitalized assets lead to insufficient cash reserves and no working “capital cushion” for unforeseen events. Taking on too much debt results in operating a business without a safety net.  The reality is most business owners do just this.  The problem is those that operate their business with little-to-no margin for error, between making a mistake—which can happen to anyone—and going out of business because you run out of cash makes most things done in the business a gamble.  Trying to run your business on the bet that you can collect the money owed you before those collecting from you get all your money is no way to run a business.
7. Poor record-keeping means you have chosen to fly your business blind. Neglect to record your business transactions in a timely and accurate manner represents poor accounting for money coming in and going out.  Failure to know what is going on financially in your business means you have no control over your business results.  You can’t earn higher profits on bad numbers in your financial reports or no numbers because you don’t have any financial reports on the quality of your business results.
8. Over-investment in fixed assets and overhead causes creates unnecessary cash pressures. Financially overextending your business creates the same challenge of doing business on a tightrope, in high winds, without a safety net.  You have serious problems when a minor piece of misfortune at the wrong time could put you out of business.  This happens when too much cash is tied up in non-revenue-producing assets.
9. Over-expansion of your business model occurs when you move into markets that are not as profitable or because you borrow too much money to keep growth at a particular rate will always damage the business.
10. Operational inefficiencies from nonproductive labor to wasted materials to paying too much for any expense will leave a company at a cost disadvantage. Fail to eliminate the inefficiency, and you will either have to increase your prices to make a profit or be driven out of business by your competition who doesn’t waste money.
11. Inability or unwillingness to adapt your business model by failing to adapt to a changing market is a sure way to go out of business. You monitor the market and your target customer to identify changes in consumer tastes and buying habits.  Fail to do this you will lose customers and ultimately lose your business.  Don’t forget Kodak, Motorolla, or Blockbuster Videos?
12. Ownership failing to change with the times puts their business at unnecessary risk. Every business owner must learn to wear multiple hats, respond nimbly, and develop new areas of expertise to recognize new business opportunities and adapt to new customer dynamics.  Failure to evolve faster than your business needs you to rob you of the opportunity to own a thriving business.
13. Dysfunctional business leadership affects every aspect of your business model, from sales and operations to financial management and employee morale. Any business leader not up to being the leader a business needs will undermine productivity leading to higher operating costs, profit losses, and no cash reserves in the bank.

Learn which of the 13 signs of a failing business has your business at greatest risk of failing?

If you aren’t clear on where your business is most at risk and what your role as a leader should be in leading your business to higher profits and more consistent cash flow, click the link below to learn which fatal flaw has you most at risk.