When you travel to Australia, you are likely to see a large number of 'lease signs' posted on storefront windows and in major retail centres across the country. It's possible that you'll have trouble understanding why the vast majority of companies in our country are struggling to succeed. But this truth has struck Australian businesspeople as the irony of life in their own fields. The data, which showed that as many as 97 percent of all firms in Australia are closing their doors, has shocked everyone. When we take into account the insights, the statistics become an even greater source of concern. According to the Australian Bureau of Statistics, more than sixty percent of small businesses fail during their first three years of operation. This statistic is based on the experience of firms that have just begun their journey. Ouch! This is without a doubt a significant drawback for people who are enthusiastic about business in the country.
Would you like to speak to a specialist? Book a complimentary discovery session by calling: (03)999 81940 or emailing team@klearpicture.com.au.
Those who choose to overlook the obvious fact that there is an elephant in the room won't be able to make the problem go away. The start-up lifestyle may seem glamorous, but it comes with a number of challenges. However, what specific things are going wrong? What is the driving force behind this massive shift in the business world? Let's have a look at it so that you may steer clear of some of the dangers and make sure that you don't end up as one of the statistics.
Warnings that Your Company Might Be Going Under:
Problems with the flow of cash
A company that is not doing well financially is one that has relatively few assets that can be quickly converted into cash. There is no room for either unexpected expenditures or errors. You are going to need more liquidity if you are spending all of your money as quickly as you earn it. Keep in mind that just though your profits are growing, this does not indicate that you should immediately begin spending all of the money (especially if your product is one that takes a while to bear fruit).
You're unable to pay debts on time
Every company is obligated to make payments, whether they be to their landlords, employees, utility companies, suppliers, or financing providers such as banks. These payments can be substantial. It is not unusual for businesses, particularly smaller ones, to have difficulty making the occasional payment. However, if you are regularly receiving payment requests from creditors in the form of threatening letters, phone calls, and emails, this could be symptomatic of a serious cash-flow problem. If you can't afford to make the payments, ignoring this kind of contact from a creditor might lead to more serious action being taken, which could be the beginning of the end for your firm.
You consistently find yourself on the receiving end of payments that are late.
If your company's profitability is strong or on the rise, but it has less cash on hand, then some of your customers are taking longer to pay, and you will need to tighten credit control. It only takes one sizable client delaying payment or going out of business for there to be a significant disruption in cash flow.
Make certain that your company is not dependent on only one or two particularly significant consumers; nevertheless, if this cannot be avoided, ensure that your payment terms are strictly adhered to. A significant customer going out of business or failing to pay is one of the most typical factors contributing to the failure of a company. Conducting regular credit checks is an easy way to keep an eye on your significant customers' financial well-being.
One of the key factors contributing to businesses' inability to make timely payments to their creditors is late payments submitted by their customers. If you make payment terms unnecessarily long or do not have a defined method for collection in place, you run the risk of experiencing a cash shortfall, which can have a negative influence on your company's capacity to function efficiently.
There is a significant amount of employee turnover
The constant hiring and firing of employees is an inescapable aspect of running a corporation. Even the most prosperous businesses experience personnel turnover on a regular basis. On the other hand, if the rate of employee turnover in your company is unusually high, this is a clear indication that something is wrong with your company. Low worker morale can be the result of a variety of different circumstances, including low pay, working conditions that are below par, or incompetent management. Low levels of productivity and high expenses connected with recruitment and training are the direct results of this situation.
When employees start quitting their jobs, it may be an indication that morale is low and that the company is not putting enough emphasis on its workforce. If too many employees leave in a short period of time, it can be detrimental to the company and take a very long time to get back on its feet. The company's reputation will take a hit, and clients may begin to turn elsewhere for their needs.
Make sure that your team is well taken care of, that there are frequent performance reviews and opportunities for feedback, and that there are departure interviews to determine why people are leaving. In most cases, monetary concerns are not behind a person's decision to part ways. The ability of an organization to keep its employees is essential to its continued success.
You have reached the maximum amount that you can borrow
If you have reached your maximum borrowing potential on financial instruments such as bank overdrafts or company credit cards and have been denied access to more financing, you need to investigate the reasons behind the denial. You should reconsider your current cash situation and take a close, in-depth look at whether or not your business is experiencing a downward trend before making any attempts to get further capital.
You are not receiving a salary from the company, correct?
It is possible that your company is failing if you are having trouble paying your staff and if you have not drawn a salary from the company in several months because you have chosen not to take one. Even if you are anticipating a sizable payment, it's possible that it won't be enough to fix the problem in the long run.
You have strayed away from the primary focus of the business
When businesses want to expand, they will frequently diversify the products and services they offer. However, if you stray too far from your core business, you may find that doing so raises your costs, exposes you to additional competition, and causes you to lose the competitive advantage you have worked so hard to build. It's possible that a faltering company that's desperately looking for additional revenue streams would have a portfolio that's too varied for its own good.
There is an insufficient amount of information for management.
Without correct and up-to-date management and accounting information, it is very difficult to make key decisions regarding the future of your firm or to zero in on specific problems. This substantially restricts your comprehension of potential scenarios and significantly lessens your capacity to respond to them when they materialize appropriately. You should be able to access a variety of different types of information, some examples of which include cash-flow predictions, sales forecasts, and data on ageing debtors.
Any company that struggles to effectively interact with its customers is doomed to fail. If there is a disconnect between the owner and manager or between management and the workers, then you owe it to yourself to do yourself a favour and listen. Put aside your pride, any personal stakes in the matter, and everything else that could be on the table, and pay attention.
People are able to detect when something in a company is going sour, and if a company can catch it early enough before it escalates into a full-blown turf war that leads to staff walk-offs and internal friction, they will be able to get their company back on track for success.
You seem to be continually putting out fires.
If you spend your working day jumping from one crisis to the next rather than concentrating on the bigger picture of running your company, then there may be some significant difficulties at play. It is very simple to become caught up in micromanagement; but if you allow yourself to become so preoccupied with the day-to-day operations of your firm, it is possible that you will fail to recognize and address the fundamental source of a problem.
A Drop in Important Clientele
If a company generates the majority of its revenue from a relatively small number of critical clients, then the loss of even one of those clients to a rival company might put the company in a precarious financial position. It is possible that competitors have released products or services that are of a higher quality than your own. The owner of the firm needs to rapidly determine why long-term customers are abandoning their loyalty to the brand and make adjustments to the ways in which the organization operates in order to stop the bleeding of additional clients.
This may be the result of one of two factors: either the quality of your goods or services does not meet the standards that are anticipated, or the prices that you charge for them are excessive in comparison to those charged by your competitors. On the other hand, there could be alternative explanations for this.
It is a warning sign for your company that its greatest clients are purchasing fewer items than they typically do. This indicates that your company is on the verge of coming to an end. Therefore, make sure that you always keep track of the purchases that are made by each consumer, particularly the ones who make the most. This will make it much simpler for you to recognize when they begin purchasing fewer items than normal.
If you're having trouble luring in new clients for your company, it's a clear sign that your product or service isn't appealing enough to customers and that it will fail in the near future.
The profitability is deteriorating.
If the company's gross margins continue to decrease, the company will eventually generate less cash and fewer profits. This could be due to a wide variety of factors, such as declining sales or increasing costs from suppliers. If the expenses of your suppliers continue to rise, you might be forced to raise your rates.
If your sales are falling, this could be a sign that you are becoming less competitive in the market or that the quality of the product or service you offer has decreased. Receiving feedback from clients on a consistent basis should provide you with early warning indications that will allow you to keep your existing clientele.
If your company's overhead costs are going up, it's essential to evaluate how important those charges are to the operation of the company and decrease them if they're not necessary. If your overhead expenses, like rent, are going up, you may have little choice but to pass those price increases on to your clients in the form of higher rates. Or change premises if you can!
Maintain close vigilance over both your gross and net profit margins.
Having a Fall in Sales
Increasing one's annual sales at an ever-increasing rate is one of the most important factors in determining the success of a small business. It is possible that the company is heading toward financial ruin if the rate of sales growth drops dramatically or, even more alarmingly, if sales fall from one year to the next. It is possible that the situation might be improved by the company modifying its marketing strategies and procedures, as well as by refocusing the message that it conveys to clients in an effort to convince them to make a purchase. It's possible that a shift in client tastes and preferences is responsible for falling sales, but it could also be that the products or services offered by the company are reaching the end of their life cycles. In either scenario, the owner of the firm must adjust the variety of goods and services it provides in order to provide those that are more in accordance with the preferences of modern clients in order to prevent the eventual failure of the business.
A poor reputation for providing service to customers
If you give your customers a bad impression, you won't have any more customers to deal with in the future. It won't make a difference how poor your front end is if you have any problems with the front-of-house service if there are any problems there. So make sure to clean up any unpleasantness there.
Imagine this situation as being similar to "The Soup Nazi" episode of Seinfeld. You are going to drive people away by the bulk, and you are going to continue losing profits unless you have the greatest product of all time, which is miles and miles ahead of any possible competition while also being strongly desirable on its own. If you do not have this product, you will continue to lose money.
Keep in mind that the appearance of the front of the house is equally as vital to the effectiveness and quality of your service as any mechanical process. If you let it fester unchecked, you risk alienating a significant portion of your clientele.
Nobody like shelling out money for services that are only average. We all want our money to be worth it, regardless of the good or service we're purchasing. As a result, it is natural for us to express dissatisfaction when they fail to live up to our expectations.
Complaints are only voiced by unhappy customers. And in the vast majority of instances, dissatisfied clients are not prepared to offer a second chance to a business.
An early warning indicator of future trouble for a company is a rise in the number of complaints received from consumers as a result of the customers' dissatisfaction with their purchase or the post-buy service they received. A decrease in the level of satisfaction experienced by customers can soon lead to a reduction in the number of customers. Customers who are unhappy with your products or services will likely stop buying from you and will likely tell their friends and family about the poor experience they had. It is necessary for the owner of the firm, along with her employees, to investigate the key factors contributing to the discontent of the company's clients and then make appropriate adjustments to the business's practices.
When you start getting an excessive number of complaints from your clients, it's a sure sign that it's time to pack up and close up business. There is a good chance that your customers will go elsewhere.
It is not simple to acquire funding.
If you are being turned down for funding on a regular basis, whether by banks or other lenders, it is important to take a hard look at any angles you may have overlooked in order to check for symptoms of damage.
Before making loans, financial institutions conduct exhaustive checks on the applicants and the collateral. A failure to check can lead to negative ramifications in the future for everyone concerned, and as a result, Australia has some excellent checks and balances in place to ensure that everyone can afford the loans they are receiving.
If you do not satisfy these standards, you should consider the matter from the point of view of the bank. I don't understand why they don't have faith in you.
Once you are aware of that, you may get to work on finding a solution to the problem. It is very likely that this will turn out to be a really urgent situation.
You have an excessive amount of stock on hand.
Even if everything may be going swimmingly for your company right now, if you have an excessive amount of goods on hand, there is a good chance that difficulties are just around the horizon. If you invest an excessive amount of capital in products, you run the risk of not having the cash on hand to pay your creditors and becoming susceptible to losses if your inventory sits on the shelves for an extended period of time.
Reduced Spending in a Drastic Manner
Employees, competitors, and suppliers of a company take the decision of the chief executive officer (CEO) to reduce the workforce or administrative staff levels as an indication that the company's financial condition is deteriorating and that there is a possibility of the company going out of business. Cutting costs is only effective to a limited extent; it is a stopgap solution for a cash deficit position rather than a strategy to restore growth and financial health to the organization. For instance, slashing the budget for marketing might result in additional erosion of market share, decreased revenues, and an increased likelihood that the company would not be able to continue operations.
The competition that is both intimidating and impossible to win against
If new competitors enter a market with brand new ideas that make yours look insignificant in comparison, or if your competitors launch killer inventive techniques that you won't be able to defeat for 10 years, then your company will probably fail.
You quickly lose all of your consumers to your competitors as the level of competition increases, and as a result, your company quickly fades away from the market.
You will, however, be able to keep your firm afloat if you engage in a great deal of creative problem-solving and remain resolute in your pursuit of success.
You have the impression that you are the only one who can make decisions.
It may be an indication that things are about to go into a downhill spiral if you are the sole person in senior management who is making decisions and pulling other people's weight. If one's ties with the other managers at the company have deteriorated, it will be quite challenging to successfully operate the firm.
It is imperative that you take prompt action in the event that you identify some of these warning indicators in your own company. If your company has potential and you get the assistance you need, you should be able to solve these problems. On the other hand, the longer you delay, the fewer the options you will have, and the more severe the consequences will be.
Would you like to speak to a specialist? Book a complimentary discovery session by calling: (03)999 81940 or emailing team@klearpicture.com.au.
Lost passion
The cultivation of ardour and drive to see things through requires passion. It helps you maintain your focus despite the various challenges that stand in your way. It helps you maintain the hope that success will arrive at some point in the future.
However, when you lose your passion, you also lose your optimism. When you lose your sense of optimism about the future of your company, it is highly likely that it will collapse.
Sadly, one of the most significant ways in which your company is going to fail because of you is if you just lose the will to continue running it to the best of your abilities. This is one of the most common causes of business failure. You, just like everyone else, need a reason to get out of bed in the morning, and if you can't receive that from your company, then it's time to start thinking about what you can do to change that.
There has been a significant amount of failed businesses in Australia. The market is difficult, and succeeding in it requires the bravery to withstand the scrutiny of both time and fate. You need to do your homework, plan ahead, run some tests on the market, locate a mentor, come up with a strategy, and put your pride aside.
It may seem like a lot, but doing all of those things was necessary for us to be heard and to remain relevant. As a result of the changes taking place in the world, the attention of our audience shifted. We moved with them so that we could be there for them whenever they required our assistance. If we were able to accomplish that, there is no reason why your company couldn't also. Businesses fail when they fail to adapt to changing market conditions and lose sight of the customers they serve.