Suppose you’ve been trying to grow your business alone. In that case, discouragement can easily knock you off your feet and make you question whether you should be giving up on your business — wondering whether achieving your dream is even possible.
If you’re feeling this fear in your business, you are not alone. I have felt your pain and so have thousands of other now successful entrepreneurs.
Why a business collapses often comes down to a whole range of factors, varied based on the industry, it’s in. It’s most often a mixture of tough economic conditions, difficulty tapping into funding and a failure to adapt to a changing market.
In the retail sector at the moment, businesses are facing pressure on two levels – pressure on revenue from rising costs of rent and the rise of online shopping.
There is a certain softness in some sectors, and there’s also the advent of technology driving online sales overseas. This has had an impact on the marketplace, and the ones who’ve lost market space haven’t adapted to society’s technological needs.
“There are also pressures at the cost level through rental obligations and employment costs. However, there are certain areas where reduced rental costs could be achieved by dealing with the landlords, but it very much depends on who you are.”
Rambaldi says if you’re a business in a well-tenanted shopping centre, particularly in Melbourne, you’re unlikely to get rental relief.
In the automotive and manufacturing sectors, high-cost bases and challenges tapping into export markets are driving the insolvencies.
“We always encourage businesses in these sectors to have an export arm, as well as a local market, but the high Australian dollar has made exporting difficult,” Byrnes says.
How did you come up with the prices you charge for your product or service? Many entrepreneurs make the mistake of basing prices solely on what others are charging or on what they “feel” is fair. This is a flawed approach because your pricing needs to take into consideration what it takes to make your business profitable.
To do this, you need to know what your business expenses are, what your tax liability is, any debt your business owes, and how much you as a founder want to take home as your salary.
You can use this very basic formula to get an idea of what your annual revenue goal should be:
(Business Expenses + Desired Salary)/(1-Tax Liability Percentage Expressed as Decimal) = Minimum Gross Revenue
Business expenses are things like software subscriptions, contractor payments, employee payroll, loan interest payments.
The desired salary is how much you want to take out of the business to pay yourself. Although note that it’s common for founders not to pay themselves a salary at all at the start. Janine Allis, founder of Australian juice bar chain Boost Juice, didn’t take a salary from her business until three years into it.
Tax liability percentage expressed as decimal refers to the percentage of your business revenue that will go to paying taxes. You need to express this as a decimal for the formula to work. So, for example, if you know about 30% of your income goes to taxes, you need to put 0.3 in the formula. Then subtract it from 1. So you’d need to plug in .7 as the divisor in the above formula.
It’s best to speak with your accountant about this because tax liability varies greatly across different businesses.
This might be a two-pronged problem: Either your product isn’t viable because it’s too costly to make (in which case, you’ll need to revisit your pricing strategy), or it’s not viable because no one wants to buy it (in which case, you should consider validating your business idea with a simple “smoke test”.
If your business is not making a profit no matter how you structure the pricing, and/or you’re able to validate a better business idea, your best option (other than shutting down your current business) is to pivot. Some of the most famous and successful companies today pivoted from their original business ideas: YouTube, Twitter, and Instagram, to name a few.
If you’ve grown an audience for your product, but you’re finding that your business is not profitable because your audience isn’t buying, then flip it around and create a product for your audience.
As you can see, if you’ve built up an engaged following, you can reverse your strategy and design a product that’s perfect for them. So if you’ve launched a business selling financial coaching services for stressed-out creative entrepreneurs, but then you found out from your audience that they need someone to get their bookkeeping set up and organized, you might consider selling bookkeeping services instead.
Do you have a great product, but you’re not making many sales? Are you amazing at what you do, but you can’t get prospects to convert to paid clients? Are you getting a lot of difficult clients or dissatisfied customers? You, my friend, may not be attracting the right people to your business.
If your business is attracting the wrong kind of customers or isn’t attracting any at all, I’m afraid it’s back to the drawing board for you. You need to revisit your customer avatar. Never created one? Well, there’s your problem!
A customer avatar is also known as your buyer persona or ideal customer. I don’t like the term “customer avatar” because it makes it sound like a video game character when, in reality, your customer avatar should be a real person.
If you’re struggling to figure out who your ideal customer is, this is my favourite exercise: Look at current customers or clients who love your product or service. One way to find them is to look at who praises your business on social media. Do a quick search on Twitter of people who mentioned your business handle.
Who sent you emails thanking you for what you do? Search your inbox. These are your ideal customers. Learn more about them. Conduct customer interviews. You’ll learn more about why people choose your business, what makes them happy with your product, and how you can improve your product to serve them better.
All of your marketing communications should flow from your customer avatar. Without one, you’ll try to target everyone, which will lead to you attracting no one.
“What gets measured gets managed,” as the old saying goes. If you have no idea what your business cash flow or income is, then you will never have a good grip on your business’s finances.
Note that cash flow and profit are not the same things: Cash flow shows the cash coming into and flowing out of your business each month, while profit includes revenue earned but not necessarily received that month. There’s no doubt profitability is important for determining if your business is sustainable in the long-run. Still, positive cash flow is what keeps it running on a day-to-day basis.
You can have a positive income but negative cash flow and vice versa. Any service-based creative business owner will understand the importance of this distinction immediately. If I own a design agency and we’ve just landed a $20,000 contract to design a client’s website, I might require a 50% upfront fee to begin work, with the rest being payable upon completion of the project two months later. My cash flow might be negative this month, but my income might be positive; that’s because while I earned $20,000 this month, I only received $10,000 (with the remaining $10,000 not hitting my bank account until two months from now when I invoice my client for the remaining 50%).
Ideally, you should know both your cash flow and your income, because you want to know if you’ll be able to pay the bills and your employees this month (cash flow statement), but you also need to know if your business is sustainable in the long-run (income statement).
Have your accountant create a cash flow statement and an income statement (also known as a Profit & Loss statement), so you can easily pull reports.
Ignoring the problems will not make them go away. You need to face them head on to track your progress. Every Monday, set aside time to update your business cash flow statement and income statement. You need that weekly picture of your business’s finances in order to feel secure about them.
Another of the signs your business isn’t working is when your health is suffering. You may have the best business in the world, but if your health is going downhill, it probably won’t last.
Burning the candle at both ends isn’t sustainable. Neither is working until you drop or not taking breaks. Without your health, you have nothing.
Having no days off is one more sign things aren’t working right. Being busy is fine or even great, but you have to take a day off for yourself occasionally.
Everyone needs time to relax and recharge. You also need to spend time with family and friends now and then.
The alternative can result in hard feelings among spouses, partners and other family members. Not only that, but you may miss out on important events and happenings that are once in a lifetime.
Here are a few ways to help turn around a failing business and help you implement them before it’s too late.
Plenty of business owners seek positive input from customers. You also should create a system to collect negative feedback. When things go awry, this is usually where you can learn a large part of the “why” behind it.
Business owners often are unable to separate themselves from their companies. You are not your business. Coming to terms with this will help you be more objective and keep your head in the game.
Some ventures fail due to irresponsible owners. You can’t afford to eat up profit simply because your name is on the paperwork. Reach an understanding of salary review for yourself and staff members to determine what’s viable at this time.
You also must be willing to ask questions. You aren’t the first person who’s experienced this phase of business. When my second business was failing, I sought advice from a colleague whom some might have considered less experienced or influential. Yet my company’s salvation came as a direct result of that objective action. Reach out. If you need to, engage a professional business consultant.
You are not an island, and you don’t hold all the business knowledge — even about your venture. Be open to new ideas. Yours may be very good, but they aren’t the only way to achieve success. You might find out that your bright ideas don’t always translate into the real world.
Pivoting sounds simpler than it is, and could mean many different things to different businesses. For some, it might mean changing your business model; for others, it might mean moving to a completely different vertical or changing your target customer. Maybe you thought your product would sell well with acoustic guitar players, but in fact, it might sell better with piano players.
You might need to sell an entirely different product. This sometimes happens because business owners didn’t properly validate their business ideas or products before launching.
You need to do a close analysis of what’s working and what’s not, and consider making drastic changes.
In the case of Wrigley’s Gum, pivoting was the result of customer demand. Now famously known for selling gum, they sure didn’t start that way.
Your team has played a significant role to get your business to this critical point. Now, more than ever, you need to transform your staff into an asset. It’s possible your employees don’t understand your business model or the business itself. Some might be barely there for the paycheck. This isn’t good for any business.
Nothing grows a business like having a dedicated team whose members commit themselves to its success. Your employees must believe they are committed stakeholders and an active part of the business. By extension, your executives must become master salespeople.
As the saying goes, two are better than one because they receive a better reward for their labour. You’ll be shocked at the magic that can be worked by a determined group.
Pitch what your customers want, not what you feel like selling. Remember your business exists to offer services that resonate with your clients. Demand and supply remain the crux of economics. Your business survival depends on knowing your customers and fulfilling their needs.
Make client satisfaction a key priority. Invest in an extensive and encompassing market survey. Engage your customers to discover what they truly want from your business. Then align your product model and marketing plan to suit their demands.
Your business won’t survive solely on existing customers. To grow your income, you need to add new clients. Create awareness for your product by investing in low-cost advertising methods. Meet people one-on-one if you must –, depending on your industry, you should be doing this anyway.
If your business fails today, your company’s assets may be your only consolation. Assets are meant to yield money for your business, and that shouldn’t change in the midst of dire circumstances. The money you could realize from trading these assets might be the lifeline you need to stay afloat.
You can lease outbuildings and core machinery for a handsome fee. At this point, you’ll feel the temptation to sell, but don’t make the decision as a knee-jerk reaction. You could lose out big, and there is no shortage of people who are waiting to capitalize on such a costly mistake.
And remember, as entrepreneurs, we are risk-takers. We understand that to make money, we have to spend it, and there may always be a lingering concern that we don’t have enough financial padding. To some extent, it’s the price we pay for a life of freedom and purpose.
When you know your business is on its last legs, you need to be proactive. Don’t sit back and wait for things to happen before you take action. Take actions that are not only preventative (before things get any worse), but that also fix glaring problems.
There’s no better feeling for an entrepreneur than when he or she is able to turn something around for the better. Every entrepreneur is faced with challenges, and a failing business is just one of many. Even if your business fails, despite all of your efforts, take it as a learning experience. Many entrepreneurs before you have had many failures before their most successful venture. You only need to be right once.
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