If you have a functional business, there’s revenue coming in each month. But the business is no longer profitable for one reason or another. It’s at risk of going under if something doesn’t change. So how do you know when your business is failing? Maybe you’re starting to take on debt, or perhaps you’ve already maxed out your borrowing options. And only have a month or two before you run out of cash. In either case, it’s important to take bold and decisive action if you want to save the business. Let’s start with save a struggling small business.
How do you revive a business that is not going well?
And the very first thing that you must do is focus on the numbers. The numbers don’t lie, and properly understood, they can explain what is and what is not working about your business.
Evaluate Your Situation
So start by sitting down with your accountant and studying the hard data. Look at the numbers as objectively as possible. As if you were someone outside of the business learning about it for the very first time.
Figure out exactly where you stand in terms of revenue, expenses, assets, and liabilities. And ideally, don’t just have the raw data, but have it broken down by product, service, or client. Depending on exactly how your business works and what makes the most sense in attributing revenue and expenses.
Now, depending on how bad your situation is, there’s a chance that you’ve been avoiding this moment for a very long time. Because once you look at the numbers, the situation becomes very real.
Before then, it’s possible to pretend that everything’s okay and that things might just work out on their own. But once you look at the hard data, you’ll know exactly where you stand. And in some cases, you’ll know exactly how many months, or even weeks that you have to turn things around.
Admitting your faults
So this is the moment of truth for your business. But one thing to keep in mind during this step is that it’s not your accountant’s job to keep your business healthy. And because as you start to go through the numbers and start seeing how bad things might be, it’s tempting to fall into the trap of blaming your accountant.
Also thinking they should have warned you, they should have said something, why weren’t they looking out for you?
But the reality is that it’s not their role to study the data; they’re merely taking the numbers you provide and recording them based on standard accounting principles.
They aren’t there to review your decisions, critique your business model, or assess how you’re doing; that’s your job. So, avoid falling into the blame game here and just focus on the data; that’s what’s most important.
The purpose of this step is to dive into the numbers in preparation for the next step. So, work with your accountant to understand what’s going on. Get their help in understanding what the numbers mean, and how they may be linked to your business’s various aspects.
How can I save my dying business? – Solutions to small business failure
And as the numbers begin to make sense, it’s time to move on to the next step. And that is to find the healthy business that’s living inside of your struggling business.
If you’re doing anything right at all, odds are one or more of your business aspects are working very well. Now, it may not be obvious at first. But as you dive into the numbers, you’ll likely find individual products, services, or clients that, on their own, are highly profitable.
Change your strategy
You may familiar with what’s called the Pareto principle. Also known as the 80/20 rule, which states that roughly 80% of effects come from 20% of causes. In this context, 80% of your success as a business likely comes from about 20% of your products, services, clients, or overall effort as a team.
Now, the exact numbers don’t always break down to 80/20. But regardless, there’s almost always an unequal distribution between efforts and outcomes.
So in this step, it’s your job to discover the 20% of things that you’re doing that produce 80% of your results as a business. In other words, to find the healthy business inside of your struggling business. And to be ruthless about identifying the additional 80% of efforts that are only producing the remaining 20% of results.
The hard part here isn’t recognizing the beneficial aspects of your business.
It’s being honest about what is not working. Because this often involves admitting some level of failure. Either failure to capitalize on a past opportunity, inability to manage risk appropriately, and execution. Or perhaps, inability to pass on what was ultimately a weak opportunity.
But whatever the case may be, this is not the moment to dwell on how we got here or what could have been done differently. Instead, it’s time to identify one or more aspects of your business that are working well. And then be brutally honest about the other aspects that are not working well.
you might have one or two products that generate the vast majority of your revenue. While requiring very little in terms of ongoing time and energy to be maintained. Or, you might have several high-paying clients that are highly profitable. While others are not only paying less money but also require more time and effort to be maintained.
Whatever the case may be, the good news here is that there are almost always severe inefficiencies in any business. But it’s not always obvious until you look at the numbers.
And sometimes, you may need to sit down with your team to get a better sense of how much time and energy they’re spending on specific products, services, or clients. The goal here is to determine what’s working and what’s not working.
Action time – Make tough decisions
After that, the next step is to take bold and decisive action to simplify the business.
This is the step that will make or break everything. And that’s because as you identify aspects of your business that are working. It’s very tempting to fall into the trap of only making minor changes or believing that maybe you can keep the whole thing running as-is, with just a few simple tweaks.
But it’s that kind of indecisiveness that ultimately kills a business. Because if you want to turn things around, you must take bold and decisive action. The reason why will become obvious as we continue.
But the point is, once you’ve identified the healthy business that’s living within your struggling business, you must ruthlessly strip away everything that’s holding it back.
Think of your business like a giant helium balloon that wants to take flight but is anchored down by failing products, underpaying clients, lack of focus, and other inefficiencies. It’s your job to strip away everything that prevents your business from taking flight.
Focus on Your liabilities
This might involve closing down whole divisions, shutting down failed projects, and letting go of teams that are no longer viable.
It’s a brutal, brutal process, but it’s one that’s necessary to save the business. And let me just say, if all of your decisions are easy decisions, you probably aren’t going far enough.
One of the hardest parts of this entire process is letting some people go. And unfortunately, if they aren’t critical to the specific products, services. Or clients that you identify earlier in step number two. Then you must make the tough choice to let them go to reduce expense, focus future efforts, and ultimately save the business.
This is easily my least favorite aspect of being an entrepreneur. Especially when it’s not even the employee’s fault that you have to let them go. But, when the entire business is at risk, the decision is already made for you.
Handle the issue gently and kindly
If you do not take action, you risk putting everyone out of work. So you must act, and when you do, keep in mind two essential things.
- Handle all layoffs in a single wave – Don’t chip away at the problem by letting one or two people go this week, and then one or two next week. All this does is show a lack of decisiveness on your part. And puts everyone on the team in fear that they might be next. Make a move all at once. And then communicate to the remaining team members that this difficult step is now complete.
- Offer generous severance pay – Trying to save money by skimping on severance is not only unfair to former employees but also sends a very negative message to the remaining team. So, handle all the cuts at once, handle them professionally. Then communicate to your remaining team members about why the cuts make. And why you’re now confident in the business’s future direction.
In addition to these cuts, it’s ideal if you can roll out any other major changes simultaneously. You want to reduce the time between when team members realize something is wrong and understand how the problem is going to solve.
If you’re following this process correctly, you should be confident in your ability to turn the business around based on the choices that you’re making.
Reborn – Promoting the new vision
It’s time to promote a compelling new vision for the business. The fact is, most people on the team aren’t going to understand what’s going on.
All they know is that people are being let go, and something is wrong. And that you’re saying, “Everything will be better now”. But they may not understand what went wrong in the first place.
This kind of uncertainty can do a lot of damage. It can cause remaining employees to start reassessing their career options. It can also cause top clients to start losing confidence in the business as they will inevitably hear rumors from both current and former employees.
So the single best way to address all of this is through transparent communication and promoting a compelling new vision for the business’s future. And this is another reason why it’s essential not to take half-measures when turning things around.
It’s crucial that you can speak honestly and candidly about what went wrong, why changes had to be made, and why you’re now confident in the business’s future direction.
And of course, if you fail to take decisive action, you can’t confidently talk about any of this. But if you made the right changes.
You let people go for the right reasons, and you’re confident in the business’s future direction. Then you can easily clarify and promote a new vision to your team. Ultimately, they’re looking for you to do two things.
- Demonstrate leadership by taking decisive action for the overall health of the business.
- provide a compelling vision of the future that they can be a part of.
And just to be clear, nobody’s excited about reduced expenses or streamlined cash flow. They want to know why you’re confident in the future of the business. And most important, what role they can play in moving the business forward.
This is where you need to communicate what is working in the business back from step number two. And how you plan to double down on those areas to grow the business in the future.
And just to be clear, this isn’t about creating hype or trying to motivate the team. It’s about simply sharing a compelling vision of the future. Also letting them know and where they fit within that plan.
So with all of that said, let’s quickly recap all four steps. First, it’s important to focus on the numbers. You can’t make the right decisions without having the hard data. So start with the numbers and clarify what is working and what is not working.
Second, identify the healthy business that is living inside of your struggling business. Apply the Pareto principle, and find the products, services, and clients that could be highly profitable. If other aspects of the business weren’t dragging them down.
Third, take bold and decisive action to strip away everything necessary to execute on the best opportunities in your business. Avoid half-measures, and be ruthless. So that you can cut expenses and have genuine confidence in the future of the business.
And finally, step four promotes a compelling new vision for the future of the business. And keep in mind, this is as much about explaining what went wrong and why changes needed to be made as it is about communicating a solid plan for the future.