In the book Streetwise Finance and Accounting for Entrepreneurs Suzanne Caplan discusses seven problems that can threaten a business. There are many difficulties associated with running a business. It can be difficult to tell what is a problem and what might just be a bump in road. Here are seven red flags that you can remedy and strengthen your business.
1. No Growth: Flat growth in revenue can mean lost volume. Costs are rising so your revenue needs to meet or exceed those direct costs. Periods of no growth are part of the business cycle. You may need to start an aggressive sales and marketing campaign. Price cuts are usually not a good way to do this since the goal is to make a profit.
2. Low Productivity: It is much easier to determine your productivity if you are measuring it. There is technology available like your accounting software, contract management software, and other tools. You could find that you are overstaffed, you are experiencing equipment failure, or your team has poor moral.
3. Loss of Market: A good rule of thumb when you are building your business it to try to make sure that a single client does not represent over 25% of your total sales volume. If you have some large clients, it is important to limit your permanent overhead. Some other things to keep an eye on are changes in your industry and if orders and payments or slow in coming.
4. Unpaid Taxes: Unpaid taxes are a huge problem. Do not borrow from any taxing body even as a last resort. There are penalties and even criminal sanctions can be applied.
5. Deteriorating Capital Base: If you are in a situation of flat or negative cash flow, you may get to the point where you are not generating enough revenue to make all your necessary payments. Look at you pro-forma statement and see if it makes sense from an investment perspective to bring in an outside investor or additional owner equity. Another alternative is to liquidate some assets.
6. Pricing Pressure from New Company: New companies often have aggressive pricing strategies. Customers will often try the less expensive upstart. It can make the situation worse if the competition has newer, faster, and lower cost technology. Price cutting can be a dangerous strategy in this situation. It may be a better choice to reposition your business with a new twist. Service and quality are valued too.
7. Lack of Strategic Planning: Business is always changing. It is important to understand the current situation your business is in as well as keeping an eye out for future opportunities. As soon as you achieve your current goals, you need to set new ones. Creating a business plan for any new idea is a great place to start.