Warning Signs to Watch Out For in Your Small Business

You can see it now—a light at the end of the tunnel for your small business. But is it daylight, or an oncoming train? One of the challenges many businesses face is recognizing the signs of trouble while there’s still time to do something about it. It’s easy to get wrapped up in the day-to-day that you lose sight of the bigger picture. Here are some common warning signs to watch for in your small business (and what to do if you see them).

Outstanding Accounts Receivable Are Growing

This is a good thing, right? Not so fast. While you might have more revenue in the long run, it can represent cash flow problems if payments from customers are lagging behind what you had planned. Follow-up on outstanding invoices to be sure they are current. You may want to reevaluate offering longer payment terms. Consider offering discounted terms for earlier payment and adding a fee for late payments.

Sales Are Up But Profits Aren’t

Customers are busting down your door to buy, but you’re not making money. One of the reasons may be your pricing strategy. Some new businesses price below cost in order to get market share. While that might be useful when you first start out, it usually isn’t sustainable. Consider sourcing materials at a lower price. Assuming you can maintain quality, it might give you greater pricing flexibility.

Competing Based on Price Alone

Customers who buy based on price alone are likely to go elsewhere when a lower price is available (and there will always be a lower price somewhere). Unless you have the volume to negotiate with your supply chain, price alone is difficult to sustain. So diversify your competitive advantage by providing rock-star service or offering unique items. Those are items that the competition is not likely to match you on.

Can’t Retain Good Employees

Your staff is the front-line connection to your customers. So if they’re not motivated, your service levels are likely to suffer. Take a look at why employees are leaving. Remember that higher wages aren’t necessarily the key. Instead, offer flexible schedules, empower employees with greater decision-making authority, or use non-monetary rewards like a preferred parking spot.

Business Coming From a Few Customers

Repeat customers are gold. But if most of your sales come from a small group of customers, you may be putting your business at risk if one of them should leave. Take a look at how you define your target market. If the size is too small, consider expanding to complementary markets. For example, if you sell gifts for children expand your promotional efforts beyond parents to grandparents of your target market.

Watching for signs of trouble ahead can help keep your business on the right track. It gives you the opportunity to make adjustments before you find out what’s at the end of your tunnel.

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