Recognizing Early Signs of Distress: Know When it’s Time to Restructure Your Business
Trends change quickly and if you don’t want to get left behind your business must too. It’s important to always be alert for signs indicating it’s time to consider a restructure. Doing so will help you not only stay ahead of the competition, but also stay afloat.
One of the most alarming signs that you need to seriously consider a restructure is cash flow issues. If you find yourself taking out unplanned loans, asking friends and family for money, or putting your own personal funds into the business, you have a major cash flow problem in the making. Ideally your business should be profitable enough to support itself or at least be appealing enough to investors who will in turn offer funding. It’s time to reevaluate your business processes and find out where all your money is going ― before it’s all gone.
Customer and Employee Turnover
Does it feel like you are always training new staff or trying to attract new customers to replace lost business? High employee and customer turnover indicates that something is wrong with the internal structure of your business. If employees do not feel loyalty or appreciation, they aren’t going to hang around for long. This can be a major cash drain― forcing you to constantly spend money and resources on hiring and training new staff. The same goes for customer turnover – if you can’t encourage repeat business, then your basic model or product need to be adjusted. Every intelligent business person understands that it’s exponentially more profitable to keep a customer rather than attract a new one.
Outdated Business Model
With the current rate of advances in technology, your business model could be obsolete overnight. If you notice your competitors moving to different platforms, like online or app-based platforms, while you are still holding on to your brick and mortar locations, it may be time to reassess. Do you remember Borders book stores and Blockbuster video? Both of these once huge companies were forced to shutter when competitors like Netflix and Amazon emerged. The book and video giants weren’t able to keep up with Netflix and Amazon’s more efficient internet business models. It’s important to remember that in business one must adapt or die ― no matter how big you are.
With all of the moving parts that come with business, it can be easy to overlook internal issues. The easiest way to spot this is a breakdown in internal communication or poor leadership. Bad management can tear a business apart from the inside. Ensuring your company is healthy from the inside out is key.
Diminishing Sales and Market Share
Are new players pushing you out of your market share? If so, it’s time to take a long, hard look at your product, as well as who you are selling to and how you are doing it. Unlike Borders, fellow book-seller Barnes & Noble was able to survive the impact of Amazon by improving its ecommerce offerings and introducing an e-reader comparable to its competitor’s. Always be alert for changes in the market. Don’t get caught off guard by your industry’s Amazon.
Operating Expenses are out of Control
If the cost of running business keeps going up, but sales are stagnant or even dropping, you are nearing the point of no return. You must immediately begin to assess your options before it gets out of hand. You might need to raise prices, make operational cuts, or turn your focus to developing products for other markets.
Anemic Profit Margins
Profit margins tend to shrink over time if prices stay the same while operational costs go up. You may also see the margins shrink if you begin to lose market share to new competition. A single low quarter may not be anything to worry about, but a continuous downward trend means it’s time to act.
Not all factors have to be present in order to indicate that it’s time to consider restructuring your business. If you are experiencing any of the above, take a long, hard look at your business plan so you can correct course before it’s too late.