Signs of Failure - What Signs Should be Recognized?

Signs of Failure

Doug McElhaney, Business Consultant UGA Small Business Development Center at Clayton State University

Ninety percent of all jobs are created by small businesses. This statistic is one reason the Small Business Development Center (SBDC) exists. Small businesses are responsible for substantial economic growth and thus government resources are allotted for training, consulting, sustaining and education through SBDC. However, with success, comes failure. Only half of small businesses survive five years and 33% reach the 10 year mark. Failing businesses do give warning signs prior to closing. The adage an ounce of prevention is worth a pound of cure applies in this scenario. So, what signs should be recognized when proactively managing a business?

What are the signs of a failing business?

The first sign of failure is losing sales momentum. No one is talking about your service or products. Any business owner needs to be constantly selling products and services. If a new customer has not been gained in the last month, it may be time to look at the sales force or marketing plan. The second sign of failure is poor cash flow and past due bills. If revenue budgets are not being met, poor cash flow will create delinquent bills and thus hindering daily operations. The third sign of a failing business is the lack of continuous improvement and innovation. Status quo cannot be allowed in any organization. Complacency and failure to adapt are proven habits of failure. No matter how successful the organization; there is always room for improvement. One suggestion is to meet with sales and operations employees monthly to see what new processes and products are needed for continued success. The final sign of failure is high turnover and having problems filling positions. A failing business may be imploding due to a toxic work environment. As a consultant, much can be learned about an organization through turnover percentages. A healthy, thriving company is the best employee recruiter.

In closing, only a few signs have been discussed. There are several more reasons small businesses tend to close. One last item of discussion is to spend as much time as possible with customers and employees. Customers know your strengths and weaknesses better than anyone. An employee spends 40 plus hours per week in their job environment. If anyone knows process flaws, it would be team members. Never under-estimate an employee’s knowledge. For more information on UGA SBDC at Clayton State University, call 678-466-5100.