While 50% are at risk 10% of businesses will fail needlessly
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- Giving unsustainable discounts to customers - pricing product or service below the price the business can afford. This will eventually hit and negatively impact cash flow.
- Not generating enough profitable sales - A drop in sales indicates that the market has changed. The product and services offered are no longer meeting customer needs, new competitors have entered the market driving down prices and or associated material and supplier costs have risen above the economic viability of producing the goods or services. It could also be your sales and marketing is working properly.
- Diminishing profit margins even if turnover has increased. Increase turnover can give a false sense of well-being. What you are actually doing is producing or selling more for less. If this loss of profit continues it will eventually lead to a crisis in cash flow which will bring the business down.
- Going over budget and not identifying the additional costs and passing them on to the customer. This often happens when a business has submitted a fixed price for a piece of work but once started doesn't manage budgets properly or fails to identify any additional costs incurred .i.e. increase in labour, material, subcontractor and other supplier costs due to changes in customer's specification. These additional costs should be quickly identified and passed on to the customers. If these costs are not properly captured your business will have to absorb these.
- Not managing planning, forecasting, monitoring and managing cashflow properly. Underestimating the cashflow needs of the business and not monitoring effectively against the changes in forecasted to actual sales turnover, profits margins and the cost of running the business.
They all have one thing in common. Performance is not being monitored, measured or managed. This gives a false sense of security that everything is OK, especially if turnover is increasing. The reality is proper weekly/monthly financial checks and balances are not being carried out as they should and poor lacklustre performance is not being picked up and dealt with early enough. It's not unusual for a business not to know for up to 3 months that cash flow has hit a financial crisis and may not have enough profit to sustain themselves. It's only then it becomes apparent the business is in trouble and it may be already too late to stop the business from going into administration or bankruptcy.
More Information on managing financial performance
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