How to turn around your business
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Businesses can take a long time to build – in fact a new-start business might take two years or longer before it can reliably pay you a full-time wage. If you look at the companies who have made it big, many of them will have spent years struggling to get traction before they took off. That is just the reality of building a business for many of us.
But at some point, if your business isn’t growing and the money is running out then you need to take action. You need to accept the reality of the situation and do something to turn your business around.
1. Find out the reality of your situation
If you find yourself in this position you need to have an accurate picture of where you actually are. If you are worried that you’re going to run out of money then you need to know if and when that’s going to happen. That means having an accurate cashflow forecast in place.
You shouldn’t run any business without having a cashflow forecast in place because you need to have a handle on how much money your company spends every month versus how much money you have coming in. Because when you know those two things, you can project what your bank balance is going to be next month, the month after and the month after that. Knowing the reality of your situation gives you a line in the sand. It doesn’t just give you the date that the money is likely to run out but it also gives you advanced notice of when that’s going to happen so that you can do something about it. So make point one getting an accurate cashflow forecast in place for your business so that you know what state your company is really in.
If you’ve never created a cashflow forecast before then you’ll find lots of guides online, or talk to your accountant who will likely be able to send you a template
Because it might be that actually, when you get your cashflow forecast worked out, that things aren’t as bad as you thought they were. You might have longer than you think before the bank balance dries up. Or it might be that you can see you just need an overdraft or a short-term loan because your cashflow predicts you’ll be back in the black in a couple of months. An accurate cashflow forecast gives you the insight you need to make educated decisions on what to do next
2. Take immediate action
Do not stick your head in the sand. If things aren’t working you need to face up to that and do something about it. You only have two options to improve the outlook of your business if you are at crisis point: you can increase sales or you can cut costs. Ideally you do both, but if those extra sales are proving illusive then you need to go hard on cost-cutting.
Cut deep and swift. Don’t be afraid to strip your business right back so that you can get it financially under control and then build back stronger. Ask what you can still deliver as a business with less staff or a smaller team. Look at all your contracts with suppliers and cancel everything that isn’t crucial. Go through every line of expenditure in your business bank account and question it. All those online subscriptions you have, the myriad productivity tools you are signed-up to, the fancy coffee you buy for the office, really be ruthless. Take out as much spending as you possibly can whilst still keeping trading. Because it might be that if you take out a significant percentage of cost that the business starts to make financial sense and works with those lower overheads. At the worst it will extend the amount of time you have to work on increasing sales before the money runs out. If you’ve got a cashflow forecast as a spreadsheet then you can see the maths in real-time. If you take out those fees that you’re paying to freelancers then what difference does it make to how much cash you have in the bank in 3 months time? If you downsize your office then does that push back the date that the bank hits zero?
3. Extend your runway
Increasing sales usually takes longer than cutting costs. So the longer you can give yourself to make changes in your business the more chance you have of keeping that business going.
There are ways as a business that you can make the money last longer. Make sure that you are efficiently collecting the money owed to you (are you chasing invoices when they are overdue, are you being too lenient on bad debts?). Look to see if you can negotiate longer terms from suppliers. Or if you have a lot of confidence in your business then you can set up short-term overdrafts or take on lending. But beware: taking out a loan just to extend the misery without making significant changes in your business just means that in six month’s time you’ll be in the same place as now but with a huge debt hanging over you too.
If the sales just aren’t coming in then you may have to do other things to give you time to make changes too. Sometimes, those things are going to feel like you are taking a step backwards but you need to make sure your personal bills are paid every month as the owner of the business. If your business is struggling to pay you enough to do that, then look to secure that income from somewhere else. That might mean getting a part-time job or it might mean subcontracting or freelancing to give yourself a regular income.
You might hate the idea, but if your businesses just isn’t working yet in its current form, then taking some of the financial pressure off will really help. If you’re being forced to make short-term decisions based on cash, then those decisions are usually not great long-term decisions for your business. Many many successful people worked side-jobs whilst they were getting their business going and there is absolutely no shame in it. Plus, solving your immediate personal financial problems will let you clear your head and come back at it all anew. It might feel like a step backwards, but view it instead as taking a few steps backwards so that you can take a run-up instead.
4. If you know you need to close the business, don't leave that decision too long
In business, we talk about not giving up and tenacity. But sometimes, closing a business can very much the right decision. If you’re certain that this idea just hasn’t worked out and you’re going to move on, if you’re losing money month on month and that’s unlikely to change, then don’t put the decision to close a business off for another 6 months.
Ideally you want to close down a business gracefully, ie to have paid all your staff and suppliers and not be in debt with a huge tax bill you can’t pay. You do not want to clear all your debts by declaring bankruptcy if you ever want to apply for a mortgage or set up another business ever again! So if it’s obviously going in that direction, taking action sooner means that you’re not just digging yourself further into a hole. Talk to your accountant, talk with your bank, and wind-up the company while it’s your decision instead of it being forced upon you. Then take what you’ve learned and apply that to the next thing.
You only have two options to improve the outlook of your business if you are at crisis point: you can increase sales or you can cut costs. Ideally you do both.
OK, so that’s the crisis management dealt with. If you find yourself in the position where things just aren’t going well then: 1. Make a cashflow forecast so that you know the reality of your situation; 2. Take immediate action to cut costs; 3. Do everything you can to extend your runway and; 4. If it’s inevitable then don’t put off making the decision so that you can wind-up a company gracefully. If you’ve already gone beyond the situation where a graceful close-down is not possible then you still need to take action. That might mean having some honest conversations with your bank or with your accountant to manage through the situation in the best possible way. Know that companies find themselves in these situations all the time and there are routes through, but don’t just think it’s going to get better without you doing anything.
So now that we’ve put our finger in the dam and slowed the flow, what comes next?
5. Have agency - and put your prices up!
The word ‘agency’ means having the ability to take action, to have control of your situation or even your life.
When a lot of us build businesses, we forget that we’re the person in charge. If you don’t like something or come to the decision that something isn’t working, then you can change it. That’s the point of having your own businesses in the first place. So don’t feel you have to keep getting up in the morning and doing the same thing day in day out like you have some boss watching over you – you are the boss. So if your business isn’t working, we need to embrace that ‘agency’ and do something about it.
And part of having agency means knowing that you can change what you charge your customers too. You will be surprised how many businesses, especially solopreneurs and small businesses, are working at capacity but still not making money. As a business, you should never be at capacity. If you are at capacity then you are charging too little for what you do, you have not balanced supply with demand.
And especially with vegan businesses, it’s easy to charge low because you are working with ‘mission-aligned’ customers that you don’t want to overcharge. But this is important. If your business is failing because you are simply not charging enough to make a profit, then you will go out of business and then not be able to help those customers anyway.
So, by putting up your prices you want one of two things to happen. Either 1, you put your prices up and your customers happily pay more because you were undercharging anyway, meaning you’ll be working just as hard as you are now (or you will be making just as many products as you are now) but you’re earning more money from it; or 2, you put your prices up and lose some customers, but you’re still earning what you are now but working less hours to achieve it. Either one of those things is a likely improvement on where you are now.
6. Revisit your value proposition
The real reason that your business is underperforming potentially has nothing to do with your inability to find more sales. It’s more likely that your business or product is not solving a real enough problem for customers to spend money with you.
Admitting that the problem is your actual product can be a really hard thing to do. For any businesses to succeed, it needs to get strangers to give you money, and the only way that’s going to happen is if your businesses solves a real significant problem for those people. This is what we call the value proposition: this is the value I’m going to give you, this is the problem I’m going to solve, in return for your hard-earned money. If that value isn’t high enough or if the problem you are solving isn’t significant enough, then people are not going to buy.
For example, imagine you are trying to sell vegan t-shirts and merchandise. 10 years ago, that was a real problem that needed solving! If you were vegan back in the day then it could be hard to get a good t-shirt or bag with a vegan design on it. Now, you might see t-shirts with vegan slogans on being sold at your local supermarket. Getting ‘vegan merch’ isn’t a problem that people need help solving any more, just search ‘vegan t-shirts’ on Google and you will get pages and pages of results. If that’s the entirety of your business idea then you’re going to struggle because you’re offering to solve a problem 10 years too late.
So take a good look at your own business. Is what you are selling, be that a product or a service, trying to solve a problem for someone that they can already solve in hundred different other ways? Or is the problem you are trying to solve not a big enough pain point for customers? Can they ‘take or leave’ what you sell because it’s not improving their life significantly enough or addressing a crucial enough problem? And if that’s the case, what can you do to change that?
Sometimes, if you’ve been in a business a long while, this degradation in your value proposition can be gradual. You may have been solving a crucial problem for your customers ten years ago but the market has moved on and you haven’t. So spend time talking with your customers about what problems they really have in their lives that you and your company can solve for them, because it might be that you just need a little tweak to your value proposition – or you might need to pivot to realign what you offer so that it solves their real problem.
7. Go back to a start-up mentality
The worst thing you can do in business is spend lots of time building something and then hope people want to buy it. Your job as an entrepreneur is to prove or disprove a business idea whilst spending as little time, energy and money on it as possible.
If you’ve now bought yourself extra time to pivot or make changes in your business, don’t now waste that time heading straight down another dead-end. You will have likely heard the term ‘Minimal Viable Product’ (MVP) in business. So ask: what’s the quickest and cheapest way you can test out if people want to buy a new idea you have come up with? Instead of having a new website built, can you launch it with a Facebook group instead? Instead of spending hundreds or thousands on creating packaging for a new product, see if you can sell it in a brown paper bag at your local market first. Instead of getting a thousand recipe books printed that are going to live in your spare bedroom for the next five years, upload your book to a print-on-demand service and see if you can get someone to buy a single copy first at zero cost to you. In fact, before you write the book at all, just publish a single recipe and see if you can get people to download it in return for their email address. Only once you have proven that a stranger will give you money for what you are selling should you then invest time and money into it.
Your job as an entrepreneur is to prove or disprove a business idea whilst spending as little time, energy and money on it as possible.
8. Consider collaborations and partnerships
You know the saying that two people can live as cheaply as one? It’s the same with businesses. There are so many duplicated costs that can be saved if you collaborate with other businesses, especially if you’re talking to the same customers.
You might look to share marketing costs on launching a new product or service together. Or instead of trying to build your own online platform to sell your product, ask if you can sell it through someone else’s. Two companies can share office or retail space to cut down on overheads and utility bills. You can even share staff and human resources, for example hiring one social-media manager between two or even three companies.
And sometimes two ‘failing’ companies can come together, and the decrease in shared overheads that comes as a result can create one really healthy company that makes more financial sense.
A bullet point recap of what we’ve covered in this article:
- Find out the reality of your situation. You need to have an accurate picture of where you actually are so that you can make informed decisions. Having an accurate cashflow forecast in place means you know when the money is likely to run out – or it might even show you that it’s not as bad as you were worrying.
- Take immediate action. Do not stick your head in the sand. If you need to make cuts then cut deep and swift. Don’t be afraid to strip your business right back so that you can get it financially under control and then build back stronger.
- Extend your runway. The longer you can give yourself to make changes in your business the more chance you have of keeping that business going. Are you owed money you can collect? Or do you need to go find other income such as getting a part-time job to make sure your personal bills are covered and to take some financial pressure off the company.
- If you know you need to close the business, don’t leave that decision too long. If you’re certain that this idea just hasn’t worked out and you’re going to move on then don’t just put the decision to close a business off for another 6 months. Ideally, you want to close down a business gracefully. Taking action sooner means that you’re not just digging yourself further into a hole.
- Have agency – and put your prices up! We sometimes forget that we’re the person in charge. So if you don’t like something or come to the decision that something isn’t working, then you can change it and that includes how much you charge. If your business is failing because you are simply not charging enough to make a profit, then you will go out of business and not be able to make the change in the world you are trying to make.
- Revisit your value proposition. Admitting that the problem is your actual product can be a really hard thing to do. But you need to ask yourself, is the problem you solve a big enough problem for strangers to give you money to solve it? Or has the market moved on and you haven’t?
- Go back to a start-up mentality. Your job as an entrepreneur is to prove or disprove a business idea whilst spending as little time, energy and money on it as possible. So, if you’ve bought yourself extra time to pivot or make changes in your business, don’t now waste that time heading straight down another dead-end. Create an MVP, or Minimal Viable Product of your idea and see if you can get people to buy that first before investing more time, money and energy in the idea.
- Consider collaborations and partnerships. There are so many duplicated costs that can be saved if you collaborate with other businesses, from doing joint marketing together to sharing office space, utility bills and resources. And if you are both talking to the same customers, then there are even more savings to be made.
