The Signs of a Sinking Corporation
Entrepreneurs who desire to close their businesses are in the minority. Yes, you should sell. Perhaps a merger is in order. Shut it down, because I have my doubts. The fact is that more than half of all new businesses established in the United States and Canada fail within the first three years of operation. That means you must understand when it is, in fact, better to reduce your losses and exit the market.
Yes, it is possible that it will happen to you. It has happened to me, so I can speak from personal experience when I say this. Perhaps the most difficult challenge to overcome is accepting the truth that, when you establish a company, you must be prepared to shut it down when the time comes. To establish if the objectives you believe are important for survival are being reached, you should have included in your first company plan a formula, schedule, and a set of criteria in your initial business plan.
In many respects, determining when it may be necessary to shutter a firm is a particularly difficult decision for a small business owner to make. Although huge organizations have substantially larger resources to solve potentially catastrophic issues, the lone-wolf attitude that helps an entrepreneur thrive may also blind him or her to the realities of the world in which he or she operates.
A business owner must enter into the operation of a company with the mindset of “I am delighted and I will succeed,” but they must also be cognizant of the risk that the firm may not survive. The passion and work required to give their company even the slightest possibility of success causes a real entrepreneur to become emotionally linked to their firm. This is especially true for start-ups and small businesses. Unfortunately, such an emotional bond might also enable individuals to miss the fact that they are truly on a sinking ship rather than just navigating a stormy sea.
Keep the following considerations in mind before making your decision: They may not always indicate that the ship is sinking, but recognizing them may help you avoid a disastrous situation that would otherwise cause the ship to capsize while you were working so hard to keep it moving at full speed.
Managing Cash Flow You are well aware that in order to remain in business, you must generate a profit. However, you should take this principle one step further and keep a tight check on your cash flow. If, for example, you’re having difficulty maintaining a monthly balance between your income and outgoing costs, this might be a warning that things are just too tight to continue for much longer. Particular attention should be paid to cash flow difficulties that continue for many months in a row. This might be the beginning of a massive spiral that has to be halted quickly, or it could be a signal that it’s time to get out.
problems with the product’s quality. Numbers may be a potent indicator that a company is experiencing actual difficulties. Signs that will never show up on a balance sheet are just as powerful as those that will. A spike in client complaints, for example, might indicate product or service difficulties that might eventually put a business to a halt — which is especially troublesome if you’ve previously taken actions to attempt to correct the situation. If you’re losing consumers or, on the other hand, discovering that current customers are cutting down on their purchases, this might also indicate the presence of a potentially catastrophic problem. Do not give up on quality concerns since they may be rectified, as was previously said.
You’re deceiving yourself. As a manager or company owner, you must maintain a positive attitude and persevere through the inevitable difficult times. However, this should never be allowed to descend into illusion or the practice of lying to oneself. The little falsehoods you tell yourself grow into enormous lies, and you are left unable to determine where you genuinely stand.
Allow me to provide an example from my own personal experience with you. I once hired a highly compensated employee who earned a good living. He had a wide experience and a large network of connections, and he seemed to be well worth the investment. Unfortunately, I had the idea that I could turn a technical person with project management expertise into a consultant who would also bring me new work. This was a mistake. Well, let’s just say that was never going to happen, but I kept telling myself that he has the talent, but he’s just not picking it up as soon as I would have liked. In the end, my small little lies to myself resulted in a lot of lost time (I re-did the majority of his work) and money (I accepted a pay reduction in the hopes that this man would ultimately bring me a lot of business as promised) and a few major complications. Don’t get stuck in a rut like this.
On paper, everything is a lie. Lying inside your own head is one thing; lying in paperwork and other corporate materials is a whole other level of deceitful behavior that should be avoided at all costs. Have you ever heard of the companies Enron or WorldCom? In a desperate attempt to keep things from appearing too optimistic, faking corporate data is a clear indication that things may have reached a point beyond repair. And you will be detected if you are attempting to deceive a bank or other lender in this manner. Not only will you not be able to get the funds, but you may also be barred from obtaining funds in the future by anybody who learns of your actions, particularly if they appear on a credit report.
There is an excessive amount of turnover. Employees are often more aware of a failing firm than the business’s owner. An unexpected mass departure of personnel occurring at the same moment is a clue that this may be the case. If this seems to be the case, inquire during departure interviews as to whether they have any reservations about the company’s long-term future. Sometimes this is just a brilliant tactic by an astute rival to steal your finest employees, while other times it is a rumor mill that has people racing around in circles for no apparent reason whatsoever. Learn for yourself by doing exit interviews and even holding department meetings to address staff issues.
Price reductions that are excessive If you find yourself decreasing prices more than you anticipated, this indicates a level of desperation that might be catastrophic-if for no other reason than you’re reducing your profit margin.
Using a plastic card to make a payment If you’re relying on your credit card to make payroll, you’re merely increasing your debt burden, which will eventually suffocate you. Don’t use a credit card to pay for your employee’s wages. If you are not attempting to dig yourself out of a financial hole, a Visa card is not the solution to keeping up with your payroll obligations. Find out precisely why you are unable to pay your bills. Who are the slow payers? Is there a lack of work? Is there an excessive amount of R & D spending? It might be a variety of things, and each of them has its own method of remedying the situation. The important thing to remember is that when you are ready to recruit staff, you should get a line of credit from a bank that will cover at least two months’ worth of payroll, benefits, and taxes, if not more. At the very least, a month’s supply.
Either there is too much tension or there is not enough enjoyment. Maintain a close watch on yourself as well. For example, if your company is causing you to have difficulty sleeping or maintaining control of your anger, this may indicate that the business is not worth keeping alive. Remember how excited you were to arrive at work every day when you first began with the company? Although you cannot expect to have the same exact enthusiasm a few years down the road, you should expect to wake up in the morning to check on the progress of your own money machine. You got into this business for the freedom, money, creativity, or anything else that made you feel good about yourself.In the event that you aren’t at least a little excited about starting a new work day, you may have a problem on your hands.
Knowing the indicators of danger may enable you to prevent issues from occurring. Keep an ear out for guidance and advice from people closest to you – not just for potentially deadly defects, but also for insight that may help you remedy the issue before it becomes lethal. Consult with your trusted advisers, such as your lawyer and accountant. They are often able to inform you when your company is in serious jeopardy. Friends and family members can frequently see the signals, even if they are not directly engaged in the company, but they can do so because they are associated with you.
