All businesses have their ups and downs, but it is a fine line between risk and failure. While every dip in revenue doesn’t mean systematic change is needed, there are clear signs that operating plans and strategies need to be revisited—and yes, sometimes, the results call for drastic turnaround strategies or a significant pivot. Failure, even on a big scale, doesn’t have to be the kiss of death; it’s a lesson. However, every business can benefit from reviewing its need for a turnaround well before they are in distress.
Here are warning signs to keep in mind to ensure your company’s small failures don’t result in catastrophe:
- Struggling with cash flow
Profits help drive a business to success. If cash flow is continually low, chances are you are spending to sustain rather than grow your business. Analyzing the ratio of operating cash flow versus total capital can provide deeper insight into a business's financial health, allowing leaders to look beyond profits when making strategic decisions.
- Having too much inventory
Holding too much inventory is costly and strains capital and cash flow. Even if all other signs internally look good, too much stock can spell trouble ahead. - High turnover or disengaged employees
Every company is going to have employee turnover. But poor retention or widely unhappy employees has wide-reaching effects on morale, customer loyalty, communication, and organization alignment. The result is low levels of productivity and high costs associated with recruitment and training. - Constantly fighting fires or managing issues
If teams or business leaders are putting out fires, they don’t have time to find out where the smoke is coming from. Being so bogged down with the day-to-day can also mean leaders are failing to identify and tackle the root cause of a problem. Sometimes these problems stem from a lack of prioritizing important vs urgent needs, but often there is a deeper issue that can affect a company's longevity. - Lower customer satisfaction
While financial KPIs (key performance indicators) are valuable, a crucial indicator of a company's potential for long-term success is customer satisfaction, often measured by the Net Promoter Score (NPS). It measures the quality of customer service and indicates potential problem areas a company needs to address. There is a reason the customer is always right: happy customers help sustain organizations even in a down economy.
Process for business turnaround
Turnaround methods target areas of weakness. Whether the company is in a downward spiral or trying to reach the next level, understanding how to implement appropriate intervention strategies can help make the effort successful. The key is to identify the areas where an organization is falling behind. We have a proven process for evaluating that, by analyzing your business through the lens of its team members (people), the way it does things (processes), and what they offer (product).
By taking this holistic approach to business operations and financial performance, it’s easier to recognize the root problems and develop strategies to turn the business around. Often we find the difference between true failure and success comes down to how a leader perceives their time of weakness: a moment of desperation or an incentive to think outside the box. These are the leaders who pivot in a crisis into more profitable and meaningful directions by honing in on how they can best leverage their business’s existing resources (think of those three p’s we mentioned).
The biggest mistake of all is not acknowledging and learning from failures. Just like a mythical phoenix rising from the ashes, businesses that can come back from the brink of failure are often stronger.
Freedom to make mistakes, self-awareness to course correct
Although you can never completely eliminate business risk, being aware of the troublesome signs and having a system in place to proactively evaluate and course correct can help. If you recognize a number of these warning signs in your own business, it’s essential you act quickly—providing precious time to identify concerns, manage cash flow, develop turnaround strategies, and implement changes to protect your assets.
In a crisis? Contact Focused Energy for operations or finance support! Our fractional advisors can help audit and pinpoint organizational or financial roadblocks.
