All businesses have their ups and downs, but it is a fine line between business risk and failure.
While every dip does not call for systematic change, 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.
Every business can benefit from reviewing their need for a turn-around well before they become distressed. Here are warning key signs to consider:
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. While other signs might be ok, too much stock can spell trouble ahead.
High turn-over or disengaged employees
Every company is going to have employee turnover. But poor retention or widely unhappy employees has wide-reaching effects on moral, 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 chasing 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 are just 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.
Related reading: Navigating Change & Managing Risk in a Tough 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 identity the areas where an organization is falling behind. We have a proven process for evaluating that, by analyzing the business through the lens of team members (people), the way it does things (process), 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 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 risking from the ashes, business that can come back from the brink of “failure” are often stronger.
Related reading: creating operation plans that work
Freedom to make mistakes, self-awareness to course correct
Although you can never completely eliminate business risk, being aware of the troublesome signs and have 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 assets.
If you are looking for a partner to help guide you through these strategies, Focused Energy can help. Schedule a free consultation with our business consultants now.
Need help proactively tackling business issues?
Some businesses in need of a corporate turnaround are facing growing distress, while others are dealing with the challenges of rapid growth and capital formation. Focused Energy's financial consultants can help evaluate your unique situation, and guide strategies to turn around your organization.