Home Entrepreneurs How to Save A Failing Business: Top 10 Problems and Solutions

How to Save A Failing Business: Top 10 Problems and Solutions

As a business consultant, many small business owners have hired me to save their failing companies. Repeatedly I see the same primary reasons for business failures – all which are fixable. 

Let me share my findings and recommendations to help you save your failing business.  After you have read this article you will have a good idea of the main problem that is killing your company and some good solutions (with resource links) to start saving your failing firm. 

Come along let’s get busy turning around your failing company. 

Determine Exactly WHY Your Business is Failing 

Your first order of business is to figure out what precisely what are your business’s main problems which are causing your failure. 

Until you are sure of the problem you cannot apply the correct solution. 

First, a doctor will closely examine you to determine a diagnosis before he prescribes treatment. Thus, this article will review the top problems I have found common with my client’s unhealthy companies. Then I will share the best solutions that you can apply to your business to survive and thrive.  

Surely you have read the statistics of how many businesses fail due to cash flow issues. It is not sufficient to know just that your company has cash flow issues.  To find the right solution you need to know WHY the cash flow issue exists. 

Is your firm have issues of under-capitalization, shifting market demands, increased competition, or management issues? Each issue requires a different solution.  I wrote this article to help you examine your business, get the right diagnosis to apply my health treatment for your ailing company. 

It will take some courage and fortitude. But no one said being a business owner was going to be easy!  Take a deep breath and let’s review the most common problems of failing companies and the best fixes to save your business.

Top 10 Reasons for Failing Businesses plus Recommended Solutions

Based on my decades of consulting experience, helping failing small businesses, your problem, and its associated solution are most likely on this list below.  Let’s get busy saving your firm …

#1 – Under Capitalized –  Lack of Cash

Many companies fail because they are undercapitalized which means that they do not enough working capital to fund their business operations. 

To determine if this is your company’s issue calculate using this simple ratio formula (from the accounting experts at FreshBooks)

WORKING CAPITAL RATIO = CURRENT ASSETS ÷ CURRENT LIABILITIES

For example, if your business has $500,000 in assets and $250,000 in liabilities, your working capital ratio is calculated by dividing the two. In this case, the ratio is 2.0.

Anything in the 1.2 to 2.0 range is considered a healthy working capital ratio. If it drops below 1.0 you’re in risky territory, known as negative working capital.

While this is not a complete picture it will give you a quick indication of your current cash position. If this is your problem apply these solutions:  

  • Increase working capital – You can do this either by a loan, investor, partner (read my guide on how to find a good business partner here) OR increase your current working capital without outside investment with:
    • Speed up your rate of receivables by implementing a vigorous collections process and tightening credit policies. 
    • Cut major expenses such as employee positions, rents, and inventory plus put new cash-intensive projects on hold. Yet, I don’t suggest that you quickly stop spending on effective marketing advertising activities. This is cash well-spent because these ads will continue to sustain and possibly build our sales to keep our cash flow stable and growing.  
  • Increase Sales volume but not by slashing prices. Instead, reach out to existing customers for new orders and find new customers and markets for your products and services. It’s vital that you not cut your prices drastically because that will further reduce your lack of working capital rapidly increasing your failure rate. Instead offer product bundles of multiple items with upgrades that do not cost your company lots of cash such as warranties, special delivery schedules, and personal attention services.

#2 Losing Customers – Shrinking Clientele

Is your company losing customers faster than you are gaining new ones? To determine if this is your problem go back to a point in time when your company was thriving and count your customer list and compare it to your current customer database. If you discover that this is your problem use my recommended solutions below:  

  • Study your ideal customer –  Begin the process of increasing your customer base by analyzing your current customers to determine your ideal customer. These are customers that want and need your offerings, pay full price, post great online reviews, and send referral customers.
  • Duplicate your best customers – Study them and answer the questions; what are their needs and why do they purchase from your company. Once you determine who your ideal customer you can begin the process of determining how to find more of this type of individual or business if you sell business-to-business. (Check out my strategy of how to prospect small business owners to sell B2B here ).

    Only after you determined your ideal customer and their motivation for purchasing your product or service should you begin your campaign below. This is important because you communicate the most meaningful benefits to your target group of people/companies. 
    Learn more about how to define your customer avatar from Ryan Battles

  • Take high-impact, direct action –  Armed with the information above you can now begin the process of contacting them directly using inexpensive methods (telephone, personal emails, and in-person visits) that are vastly more effective than expensive advertising. Perhaps this sounds intimidating or old-fashioned. 

    Remember when your company is in trouble (and cash is scarce) the direct sales approach is the only way to go. You could send out hundreds of emails and spend thousands of dollars on online ads and end up with nothing but wasted time and money hastening your business failure.

    When my company was in trouble, I saved it with a few well-placed phone calls and in-person visits that generated orders and a new company partnership. Entrepreneurship is not for sissies!  

#3 Too Many of the Wrong Customers

Maybe you have enough customers but they are the wrong types of customers. Wrong customers are ones that don’t pay fair prices for your products and services. They are also demanding and difficult so it costs more to do business with them than other types of customers.

To determine if this is your problem begin by studying all of your customers and the prices they pay. Also, review the amount of time it takes to collect their invoices and deal with their calls for special requests. 

You may discover that you have multiple low-quality customers that are slowly killing your business.  If this is your problem here are my suggestions:

Let Go of Bad Customers

I know this sounds scary especially when you are in a tough cash position, however, if you continue to serve customers who don’t pay full price and are slow to pay it will only hasten your company’s demise.

Start weeding out these customers by increasing their prices and refusing their demands. It is far better to lose a few challenging customers and save your business. 

Get More High-Quality Customers

Simultaneously, while you are removing profit-sucking customers go to step #2 above to analyze your database and market to determine your ideal customer. Then you can begin to find higher-quality customers that will appreciate your products and pay you a fair market value saving your firm. 

#4 Shifting Market

Perhaps your industry marketplace has shifted while your company has not. To determine if this is your issue, study your industry and compare the current major players, and their offerings, to past years. 

Frequently people’s needs and wants change over time and you’ve not kept up. This is certainly happening in all types of industries especially those affected by trends such as fashion and food. 

If you suspect that this is the problem start fixing your company by:

Studying Trends in your industry

Read industry publications, blogs, listen to podcasts to better understand the shifts in your industry, and spot opportunities to modify your existing products and create new ones. Attending trade shows is an excellent want to immerse yourself in your industry and learn about future trends.

Also, venture outside your industry and listen to some future trends gurus such as The Growth Show and the Real AF to spark your imagination and think outside the box generate innovative new ideas.

Conduct a customer survey

Perform a customer survey, and include your employees,  to ask questions about what kind of changes they would like to see in your products and services going forward. Frequently the best ideas come from your employees, team, and existing customers.

Alternatively, you could state a focus group in physical or digital form. Gather a group of your target demographic customer and ask for honest criticism about your products and company and solicit suggestions for improvement. Smart tips on how to fun an effective focus group from Small Business Trends. 

#5 Employee issues

Your issue could be your employees for numerous reasons such as theft, lack of training,  resentment, and incorrect pairing of person and job roles. 

If you think you have employee issues you need to deal with them right away because they can tear down your business quickly.  

Here are some suggestions on how to correct: 

Check for embezzlement

Sadly employee embezzlement is a huge problem in businesses. Read my in-depth article on how to discover if employees are embezzling from your firm here. 

Review staff positions

Examine every team member’s job description and their suitability including personality, level of competence, and contribution to your bottom line. You are certain to find areas of excess labor, incompetency, and incorrect personality to job function matches. 

Based on this information take the following corrective measures: 

  1. Increase training for poor employee performance due to incompetency
  2. Modify or change the job description to better suit individual traits
  3. Switch job roles amongst team members for better workflow
  4. Eliminate employees that no longer are needed or don’t serve your customers or company best

#6 Extreme Seasonality

Another issue I regularly see in failing business is extreme seasonality that has not been properly addressed to prepare for their slow season.  If this is your business type, use my recommendations to relieve your extreme seasonality:

Save working Capital 

Develop – and rigorously follow – a savings plan during your busy season (when cash is flowing) to survive during the slow season. 

Preplan by forecasting your sales and expenses during your high season and how much cash you can save weekly and monthly. 

I reccomend that you put the money into a business savings account.  Check your bank balances regularly to be certain that it is sufficient and meets your stated savings goals. 

While you may not have alot of expenses during the slow season you do have some critically important payments to make such as rent, management payroll and insurance. Additionally you will likely need cash to buy inventory, hire personnel in preparation for next year’s busy season. Be sure to calculate in this amount into your savings plans. 

Create Off Season Products & Services

An example of this tactic are swimming pool stores, whose busy season is summer,  that during the winter sell Holiday decorations. 

They discovered a way to utilize their existing business assets, a large well-trafficed retail store, to sell different products.

The key to success is to sell to your existing customer base (the pool clients are local families who take pride in the appearance of their homes) while changing products to match demand in the time frame (from summer swimming pools to winter Christmas ornaments).

Here are my best holiday marketing promotional ideas that are doable and affordable too!

Every seasonal business can make money in their offseason. My winery client is very busy during the fall with wine tastings. However, the winter was slow so they developed a winemaking course for people to learn how to make wine.

It was easy to set up and low cost, because they were already working in the winery making wines so this was an added profit generator.  I set up a summer promotion (while their traffic was busy) for the winter course sign-ups which was super successful. 

Close down to save expenses

Another option would be to completely shut down during the off season to reduce overhead costs.

I live in a small town in an agricultural region and many of the companies shut down from Dec to March. This will save substantial working capital. Plus you can use this time for building maintenance, vacations, and strategic planning for the next busy season.  

# 7 Increased competion

It could be that your business is failing due to increased competition from both within your industry and outside your industry.  Thesedays small busienss face competition from foreign companies and customer shifting buying habits bringing in a whole new set of competiotors!

Now traditional watch manufacruters are competing with tech companoes like Apple and their popular smart watch. Thesedays it is not enough to watch your fellow industry competotors you need to scan the horizon for emergeing business threats and prepare. 

Here are 10 ways you can keep ahead of the competition from the experts at Marketing Donut. 

# 8 Management 

Frequently the problem with failing businesses is in the management team – could be you! Yes, you the business owner. I have found that many times I am the problem in my failing business. This is actually good news because you have the power to make changes within yourself. 

It is time to take a critical look at hard truths and make some perhaps difficult decisions to save your company now such as these below:

Partnership conflict

Are you and your partner (spouse) having conflicts?  It is vital to work it out for both your personal and professional life. Check out my guide on how to resolve partner conflicts and move forward successfully.

Entrepreneur Competency

Successful entrepreneurship is a lifelong University course. Every day there’s something new to learn such as; new sales strategies, online marketing techniques, and employee training processes. 

It is most likely that there are a few areas that you need to improve your skills and learn new expertise. Be rigorously honest about which areas you need improvement. Give yourself an employee review evaluation. 

Switch hats and be the boss and examine your contributions as if you were an employee only. I did this and discovered that I need to improve my writing speed and skills. 

So I found a good online course for business blog writers (Enchanted Marketing ) and enrolled, watched the videos, and did all the exercises too! It has made a huge difference in my writing productivity (I used many of the techniques during writing this article!). 

There is a world of online courses at reasonable prices (such as Udemy) which you use to learn at your pace and on your schedule.  

#9 Poor Accounting Practices

Sloppy accounting practices are often the causes of small business failures. 

Entrepreneurs are often so busy promoting their products and meeting customers that they forget to carefully track and review their bookkeeping regularly. 

Often, I see business owners focus on only a few numbers such as sales volume and bank balances. This is a woefully inadequate picture of a company’s financial status which will lead to poor decisions and financial troubles.  

I highly recommend the following steps to tighten up your accounting process to have a clear vision leading to sound financial decisions and good bottom-line results.  

Prepare and Review Cash Flow Reports  

One of the smartest things I did in my manufacturing company was to have a detailed cash flow report prepared weekly which I then carefully reviewed for an hour every Friday afternoon in preparation for the next week and months ahead. 

This bookkeeping practice enabled me to see the tight (and negative) cash flow points that needed to be adjusted right away sparing me from money problems in the future.  

If your firm is growing rapidly careful cash flow management is extremely important because your firm is consuming large amounts of working capital. Many business owners have been fooled by increasing sales to believe that they have plenty of cash. When in reality growing sales require more working capital straining working capital reserves so you often have less cash flow. 

Monthly Sales Projections 

Similar to the process above that I performed weekly for Cash Flow Analysis I suggest you perform monthly, quarterly, and annual sales projection reports. 

Have your report professionally prepared by your accountant or use high-quality account software programs. I recommend Freshbooks for easy invoicing, report generation and simple interface.

Regularly (weekly and monthly) compare your actual sales to estimate projections reports. This will enable you to make modifications to your sales projections (and associated cash flow)  and increase sales promotions to reach your projected sales goals if you fall short.  

Carefully Track Expenses 

Record and review all your business expenses carefully and regularly. I oftentimes see business owners not entering their credit card receipts or petty cash into their software systems.

They think that these amounts are small. However, this results in an inaccurate financial picture and higher expenses and lower profits. Make it a habit to enter all expenses by the weekend – every week! 

Send Invoices and Collect Payments Faster

Believe it or not, some business owners are slow to send invoices – which means they don’t get paid quickly!

Please don’t delay sending invoices. Use this free online email invoice system to send customer invoices in minutes. Your customers can conveniently pay these electronic invoices using their credit card. You do not even need a dedicated merchant account for processing credit cards.  

Collect Deposits for Large Jobs

When you are doing custom work and for big orders collect a deposit payment of ⅓ to ½ upfront. This will help you to purchase materials and to secure the client’s commitment to the project. For all my consulting work I collect 50% upfront before the work commences.

If your client is unwilling to make a deposit it can be wise to turn down the job. Because if they will not pay a deposit likely they will not pay their bill at all!

# 10 Technical

Perhaps your company has been outpaced by technology either digital or mechanical. These days this is happening at a breakneck speed and businesses must keep up to survive. If this is happening to your company are some ideas on how to fix it:

Open Additional Distribution Channels

Just because your current distribution methods have changed in your country does not mean that all markets. As such you may want to look for other ways to distribute your products and services such as online, through social media, in partnership with other companies like mail-order, TV shopping and import-export.

 Ways to update your product and services

If you have determined that your main product benefit is still valid to a large enough group of customers then perhaps your product and service just need updating. This could mean additional features, new packaging, new fragrances & flavors, or ways that you deliver items. 

An example is a hair salon that specializes in seniors’ hairstyles that seemed to be going out of fashion. After some creative thinking, the hairstylist started a mobile salon business that goes to these seniors homes. This age group is most appreciative of not having to travel to the salon because of diminishing eyesight and energy levels. 

Funny she actually increased her business instead of failing!  This is simply updated in the delivery method. How can you update your delivery method; subscription box, membership, digital, or mobile?

Now that you know about the top 10 reasons businesses fail and the solution you are ready to turnaround your failing business. 

If you are unsure what your biggest problem is from the list above start with #1 and focus on your working capital and cash flow position. 

Next, pick the most likely problem and start applying my tactics. Invariably you will find that more information (and problems) may be revealed. This is good because most failing companies have a few problems, not just one. 

Only when learn more can you apply the greater solutions and redirect your failing company and to success. 

Know that it is possible to save most businesses with clear thinking and right action. 

Good luck and courage my fellow entrepreneurs as you go forth to save your company using my recommendations. Please keep in touch and let me know how these strategies work for you and feel free to ask me questions via email. info@best4businesses.com  

The post How to Save A Failing Business: Top 10 Problems and Solutions appeared first on Best4Businesses.com.

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