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.
Content contributed by Lisa Wedin, AKSourceLink. AKSourceLink is a proud affiliate of U.S.SourceLink, America’s largest resource network for entrepreneurs.