Turning Around From Small Business Failure

If you believe the statistics small business failure is a common occurrence and there are many different reasons why businesses may fail to reach the five year mark.

Some of the most common causes of small business failure are poor management, expanding too quickly and a lack of financial skills (too little cash in the business or simply not understanding their real financial picture)

Some business coaches specialize in business turnarounds. However, their success is mainly dependent on the skills of the business owner and their willingness to face up to what needs to change and to put those changes in place.

"Most people spend more time and energy going around problems than in trying to solve them" Henry Ford

Whilst the business coach will help identify what needs changing and facilitate the process, they won't actually do the work.

It will still be the business owners responsibility to make it happen.

Business turnarounds are risky for business coaches to take on because there's no guarantee the business owner will get the results and be able to pay their bills!

Consequently they are likely to have a strict criteria for deciding whether or not it's worth the investment of their time.

Red flags

Businesses don't just start to fail out of the blue. There is usually a trail of warning signs that have not been paid proper attention to along the way.

Some of these include:

  • Sales problems – either a dip in sales or a lack of momentum ie. sales are not increasing consistently
  • The business owner has lost focus – they’ve become distracted by personal problems or a new project
  • Key staff are leaving or there's been a suddenly high turnover of staff
  • Nobody takes responsibility for problems – there’s lots of blaming
  • Customers are complaining or you've got more product returns than usual
  • Repeat business is falling and you're not getting any referrals
  • There's less cash in the business - not enough money to finance growth, owner getting paid less, bills late being paid etc
  • Staff are suffering from low morale and stress

What causes a business to start failing?

Business Coaching Insight:

When problems occur do whatever is necessary to make sure they don't occur again

There are potentially numerous reasons why a business will start faltering including:

  • The business owner losing focus and getting distracted by other projects or personal problems
  • The business not being a market leader or innovator in its field
  • The business not being fully systemized
  • Staff not being managed well or trained to do their jobs properly
  • The business has expanded too quickly without having the right infrastructure in place (including the right staff members)

As a business owner it is essential to acknowledge and deal with problems as they occur so they don't fester into horrible big problems later.

There is a subtle distinction between solving problems and fixing them.

If you fix it you just sort it out right now but if you solve it you do whatever it takes to make sure it never happens again.

Small business failure is usually the result of an accumulation of smaller problems that haven't been dealt with. 

What to do if your business is in trouble

The immediate turnaround strategy of a business that's in trouble should be to focus on:

  • Facing up to the brutal reality of the current state of your business. Be absolutely honest with yourself - this is no time to fool yourself that things will just work out
  • Finding ways to immediately get more cash in to the business - increase sales, chase debtors, sell off old unsold stock at a discount, drastically cut expenses, renegotiate the terms on loans, delay expenditures on new purchases etc.
  • Finding ways to immediately increase your profitability - reduce your costs, streamline your products and drop those that are unprofitable, get rid of under-performing staff
  • Quickly assessing what needs to be done better - look at everything you are doing as a business and ask whether it can be done better.

    Can some things be dropped or cut altogether? Can you make or deliver your product in an entirely different way?

    Do you need to put in tighter financial controls? Do you need to review your marketing and cut what's not working or look at your sales policy in detail? Do you need to increase leads, improve your conversion rates or get better at up-selling/cross-selling?
  • Getting help - gather a team of people around you to help you make necessary changes including talking to your bank, accountant and business coach

When small business failure is a very real possibility nothing should be off limits.

Successful business turnarounds require swift decisive action and an overhaul of the way the business operates. BIG goals are needed with a detailed action plan and accountability for making it happen.

If you hire a business coach they will look in detail at every operation of your business and question what you’re doing. In many ways it’s easier to face this process with an outside party – business owners, like most human beings, resist difficult truths and change.

Business Coaching Questions:

  • What red flags are occurring in your business to indicate a potential small business failure?
  • Are you ready and willing to admit your own mistakes?
  • Who will be in your 'turnaround' team?

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