Erickson Business Coaching | Don't ignore these 5 warning signs
Most of the time, there are warning signs that your business is headed for trouble. here are 5 of them.
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Don’t ignore these 5 warning signs

As a business owner, you need to always be scanning the horizon for possible trouble. And when you see the warning signs, you need to respond quickly before you find yourself in a crisis.

Here are five early warning signs that your business may be headed for a rough patch.

1. The number of new customers is down

Consistently bringing new customers in to your business is critical to your success. If that number starts to dwindle, it could be a sign that you have one (or more) of these issues.

  1. Your sales team isn’t converting prospects into new customers
  2. Your lead generation process isn’t creating enough new leads
  3. Bad word-of-mouth (or negative online reviews) are scaring new prospects away
  4. The competitive landscape has changed
  5. Your market is contracting

Dwindling numbers of new customers are an early warning of revenue problems on the horizon. As soon as you see this trend, you need to understand why it is happening.

Examine the whole lead generation funnel to see exactly where you are losing prospects. Once you understand where prospects are leaving, you will be able to address the problem.

Also, monitor social media and review sites. Don’t underestimate the power of negative comments to hurt your business. If social media is less important in your industry, talk to trusted partners to see if there is any negative information out there. If you find something, take the necessary steps to fix the problem that led to the negative comments.

Have any new competitors entered the market? If so, maybe they are offering a better price or more value. Research the threat and respond as appropriate.

Are people moving away from what you sell to a newer technology or process? History is full of examples of markets that died.

Remember there used to be something called a travel agent? Remember buying music on a CD? Remember going to a store to buy a book?

Markets have a lifecycle. If yours is nearing the end, you need to decide how to pivot.

2. Your pipeline is getting smaller

This problem is related to the first one. If you aren’t getting as many new prospects as you used to, it’s only a matter of time until you see revenue declines.

You’ll want to look for the same issues I described for a decline in new customers.

In most cases, you will see your pipeline contract before you see fewer new customers. So, don’t waste any time dealing with the problem.

Think of a shrinking pipeline as early stage cancer.  It can be cured with far less drastic measures than you will need to treat the later-stage cancer of less new business.

3. Employee turnover is increasing

Does it seem like more people are leaving than in the past? This could be a sign of morale and engagement issues. Unhappy employees rarely deliver exceptional (or even positive) customer experiences.

Allowing employee problems to fester pretty much guarantees customer satisfaction issues. And that pretty much guarantees you’ll be dealing with #1 and #2 above in the not too distant future.

What should you do?

  1. Start doing exit interviews with departing employees. Ask specifically about the aspects of the company that they didn’t like. Seek to understand what made your company a place they didn’t want to be. It is best to contract with an independent trained interviewer, so you will get better information. Most of the time, you are part of the problem. People will be more likely to say that to someone else.
  2. Look for interpersonal conflicts among employees. These problems have a way of poisoning not only the people involved, but also the people around them.
  3. Stop giving people who aren’t pulling their weight or who have a bad attitude a free pass. You hired someone to do a job, you should expect and demand that it gets done. If you don’t take action to resolve the performance issue, others will notice and become resentful. If someone is constantly complaining or speaking negatively about the company, it will affect the people around them. If they aren’t happy with their position, it is in everyone’s interest that they find a new one.

 

4. Customer complaints are increasing

An increase in complaints from customers means your delivery process is malfunctioning. You urgently need to understand the cause of the issue and take steps to fix it.

When an issue is handled well, often the result is a more satisfied customer than if there had been no issue at all. If it isn’t handled well (or at all), you will quickly find that you have an increasing number of former customers. And those former customers are likely to be the source of negative word-of-mouth.

Customer complaints will generally fall into one of three categories:

Product quality. If this is a common theme, you will need to look closely at your products. Resolving the problem could mean changing your suppliers, modifying the design, or changing the manufacturing process.

Process. If this is a common issue, look at how you deliver your product. What can you change to make it easier, faster, or more convenient for the customer.

Employee behavior. Complaints here will require either additional employee training or a change in personnel.

5. Cash reserves are falling

Running out of cash is one of the biggest problems small businesses face. It can even happen to companies who are growing.

A decrease in your cash reserves means that you are spending more than you are bringing in. yes, I know I’m stating the obvious.  Let’s look at a few possible causes.

  1. Costs are too high for the level of sales. This is the worst case scenario because it is a big, structural issue with the business. The only fix is to either increase your sales to cover your costs or cut your costs to levels your sales can pay for.
  2. You aren’t collecting payments fast enough. Look at the age of your receivables. The longer those payments are outstanding, the more problems you are likely to have with cash flow. There are a few ways you can get paid faster:
    • Get more aggressive with your collection efforts
    • Specify shorter payment terms (net 10 or due on receipt instead of net 30)
    • Offer quick pay discounts to encourage fast payment. 2% 10 net 30 is popular. Don’t like the idea of giving a discount? Increase your price so you get the full amount you would have charged when they take the discount.
    • Increase your prices to increase gross margins
  3. Slow down your payments to your suppliers. Try to pay sub-contractors or materials suppliers after you have received payment from your customers.

 

You need a system to track key indicators

Of course, the only way you will see these warning signs is by having a system to monitor them. If you don’t already have them, create systems to track the important metrics for your business.

Need help with that? Call me.

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