Red Flags often ignored by business owners:
Business owners make every effort to make their business successful and deliver the desired profit levels. Being overwhelmed with day-to-day activities, business owners often miss out on red flags of underperformance. By identifying the issues earlier, it is easier to implement corrective actions. It becomes increasingly difficult and impossible to pull up the business from a nose-dive by choosing to ignore these. The top five red flags often overlooked by business owners are as follows:
- Fall in sales: Naturally, business turnover will show ups and downs. However, if there is a consistent trend of revenue drop over consecutive quarters, it is a red flag that needs immediate attention. Something has changed that is affecting the sales revenue. This revenue drop could be internal – demotivated sales team, unavailability or a decline in the quality of product /service. Consistent revenue drops could also be external – new products/ services available in the market. A periodic review of sales revenue on a monthly/ quarterly basis is a must to understand any changes in market dynamics.
- Reduction in marketing spending: It is good to keep the expenses under control but not at the cost of sacrificing the business’s visibility. Digital or otherwise, marketing is essential to be in sight of the existing and potential customers. If not immediately, expense reduction in marketing spending will hurt in the medium to long term. A planned marketing budget with activities, a calendar & clear deliverables is a must for business development that suits your line of business.
- Increase in OPEX: When business is flourishing, inadvertently, we tend to incur expenses towards “good to have” items. Over some time, unless checked, the OPEX can quietly balloon out of control. It is a good practice to monitor the year-on-year or quarter-to-quarter OPEX against the turnover/ revenue during the same period. Benchmarking OPEX with similar businesses is a good reality check.
- Reduction of margin: In this competitive world, there is huge pressure on business owners to keep on adding more customers. However, piling non-value-added customers pulls back the business profitability. Customers look for the best value for money. Still, suppose your best offer does not fit the bill. In that case, it is better to walk away rather than provide poor service/ quality to meet price expectations, as this seriously undermines your reputation and value proposition (brand). Make it a priority to deal strictly with customers who are habitual poor paymasters. A quarterly “weeding exercise” on overdue is strongly recommended.
- Keep an open mind: It is always a daunting task to address the elephant in the room, especially if it is our creation. Despite having a hunch of flagging business financials, owners often procrastinate appropriate actions until things reach a runaway situation. It is very important to have an open mind to accept that not all decisions/actions, even with the best intention, will help the business grow. Acknowledge the situation and rectify it rather than wait for a miracle.
At Beyond Numbers, we provide standard bookkeeping, accounting & taxation services. We also work closely with our customers in creating tailor-made reports (unique to the industry requirement), effectively monitor the business performance, and suggest proactive corrective actions.
We truly remain “your partner to new heights” …