Last time, we discussed 5 of the 10 signs that your business may be heading for trouble. All involved looking at the structure of your top line, your sales. Now we want to move on to the next five signs.
#6 – High employee turnover
When you lose employees, customers are affected – they deal with less experienced people who don’t know your business or the customer’s needs as well as long-time employees.
There’s a concept from Harvard Business School called The Service – Profit Chain. It says that employee satisfaction leads to customer satisfaction. Customer satisfaction leads to revenue growth. And revenue growth leads to profit growth.
So the chain starts with employee satisfaction. High employee turnover is often a sign of unhappy employees. That is why this is such an important early warning sign. Plus the costs of training people so they’re fully productive are significant.
#7 – Costs rising faster than sales
Costs rise for a number of reasons. As your sales rise, so will your costs. If they don’t, why do you need that cost at all? So rising costs are expected. However, it’s a bad sign if costs are rising faster than sales. You have less and less profit on each dollar of sales.
#8 – Disproportionate purchases from one vendor.
Sign #5 was being too dependent on a single customer. We don’t want to be dependent on any vendor either. This applies not just at the enterprise level, but within product categories as well.
If you’re too dependent on any one vendor in any one category, your vendor may have too much leverage in your business. They can pass on cost increases to you that you may not be able to pass on to your customers.
So it’s important to diversify your vendor base or at least have a back-up plan for needed supplies. Maybe you still use your vendor, but you know who you would go to if need be.
#9 – Unwarranted increase in receivables
It’s great to make sales, but not if you don’t get paid! That’s worse than not making the sale at all because it costs you money to make a sale. Slow paying customers also create problems because you can’t pay your bills with receivables; you need cash!
This is one of the biggest challenges facing small businesses right now. Their customers are paying slower, which means receivables are growing. Make sure you’re the squeaky wheel – you have to keep after them, make some noise, so you stay high on the list. Consider offering a discount for early payment or, even better, change your terms to cash-on-delivery if possible. And best of all, ask for prepayment. But that’s a whole other show!
If you can’t afford to offer a discount, make sure you’re charging a late fee and notifying your customers regularly of their balance due. Get on the phone and call them. See when they will pay and then follow-up if they don’t.
#10 – Unjustifiable inventory build-up
Depending on your business, inventory may be even less liquid than receivables. First, you have to sell it; then you have to collect on the sale.
Inventory that’s not turning over is dead-weight. So if your inventory is building up too fast, your business will likely experience a cash crunch at some point. Get slow moving inventory out the door, even if you have to give it away!
How does that help, you ask? Because space is costly for any business. And shelf space is an incredible asset for retailers. Having a product sitting there as dead weight costs any business a little bit; it costs retailers a lot!
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Thanks so much for reading our post today. Join us next time when we ask, “Do we need to take the social out of social media?” Until then, here’s to your bigg success!
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(Image in today's post by asifthebes)