When Small Businesses Reach the Danger Zone
It seems counterintuitive, but the facts show that the failure rate for small businesses actually increases with longevity.
If you do a quick internet search, you’ll find a primary reason for business failure is lack of sufficient cash flow. That certainly makes sense, given a business that doesn’t have enough cash coming in to pay its bills isn’t likely to be doing well.
But, why, after years in business, is a company more likely to experience a shortage in cash flow than a newer one? Let’s take a look at several factors that can help explain this puzzling statistic.
If it’s always worked before, why change it?
It’s human nature to assume that what we’ve always done in the past is the right thing to keep doing. This tendency overlooks that eventually everything changes. Technology, customer desires, competitors, workforce mentality””it all evolves over time.
Business leaders who are reluctant to challenge the status quo or experiment with new ideas shouldn’t be surprised when sales levels aren’t what they used to be. Entrepreneurs who are willing to evolve and change their processes when necessary continually lead their companies into a steady cash flow position.
Remember what it was like in the beginning
Staying in tune with market changes doesn’t mean losing the focus you had when you opened your doors. Maintaining passion for the long-term vision as opposed to jumping into impulsive, short-term solutions is not likely to steer companies wrong.
Many companies when they first started had a ” lean, mean, fighting machine” approach to success. A lean business continually becomes more efficient and agile over time to improve operations and quality and produce reliable, loyal customers, and maintain a healthy cash flow.
Beware of the sneaky cashflow killers
When sales dip, customers leave, expenses go up or competitors up their game, it’s reasonably easy to understand why cash flow is taking a hit.
But there are other, not so obvious, factors that can slow cashflow. Here are a few:
- Inventory ups and downs aren’t managed. Maintaining proper inventory levels at all times is critical to success. If your product is in high demand at certain times and you don’t have enough, you lose business. If orders go down and you’re sitting on a large surplus, you’re losing money.
- Customer needs aren’t Job #1. Customer expectations and specifications can turn on a dime. The time it takes for you to react to them can be the deciding factor between them choosing you or a competitor. Your business has to establish the ability to adapt and deliver quickly.
- Employees lose job satisfaction. Your people can be your company’s biggest asset or its downfall. Asking them to do things they weren’t hired or trained for degrades their efficiency and sets them up for failure””neither of which is good for the bottom line.
Outsourcing can be the small business owner’s secret weapon
Many smart small business owners turn to local outsourcing to help them”¦
- Try new ideas without a large outlay of cash upfront
- Improve operations by eliminating waste
- Ramp inventories up or down when needed
- Quickly react to changing customer needs
- Make the best use of employee talents
Contact us at Ohio Valley Goodwill Industrial Services to get a more in-depth understanding of how our outsourcing services can help your company’s cash flow stay healthy for many years to come. We’d be happy to speak with you and arrange a free tour of our facilities.
