Turning around a failing business is one of Startup Addict Musings more popular posts and a few folks commented it was a bit too qualitative for their needs. I decided to write a part II to the article and add more tangible solutions.

If your business is failing it’s most likely due to one of these reasons:

1. not being profitable
2. cashflow problems
3. poor management

Not being profitable is a direct result of not truly knowing your fixed costs, there may also be a paradigm shift within your industry that injures your sales. The other culprit for a failing business is cashflow problems usually stemming from a myriad of reasons:

1. Low profit margin or low revenue volume
2. Don’t understand your fixed & variable costs
3. Collecting money (accounts receivable) in a timely fashion

Poor business management is the last of the three most common reasons your business may be failing. If you happen to be the management then an outside consultant, mentor or business associate may be neccessary to enable you to see the forest from the trees. If you have hired management to run you company you should identify the problem or find managerial replacement.

Your failing business may be a result of a less common reason (like 50% of sales are from one client you lost) but don’t lose heart, identify the source of the problems and review the systems you have put in place for your company…try to adapt and overcome. You may need additional funding, give up an equity stake or get a line of credit or bridge loan. That step should only be taken when the source of the problem is identified. You may deem the business irreversible and ultimately have to bankrupt, liquidate or close, but at least you did the due diligence neccessary to make the right decision.

Remember if you do as you always did…you will get what you always got….so change

Cutting Business Overhead

Overhead is the 600lb gorilla you have to reduce to a chimpanzee. In order to cut business overhead and run a healthy business you need to know your fixed and variable costs. There are two fundamental steps that can be taken to improve profitability in this category. The first is fixed cost, these are payments you have to make each week and month and have very little control over. However, there may be wiggle room in your fixed costs such as switching Internet providers or outsourcing certain tasks. Most of the fixed costs will be set in stone like a 20-year business lease etc. The bottom line is too lower your overhead by streamlining and reducing your fixed costs. The second step is reducing your variable costs, such as discretionary purchases the business makes. If you are a retail store hard up for cash, do you really need to make a capital investment for a building exterior face-lift or does it make more financial sense to choose advertising and customer reward programs instead. These variable costs will make or break a company and are decisions astute managers and owners are faced with on a daily basis.

Time allocation toward earning money.

There are 8 to 10 hours in a normal business day and if you spend six hours doing administrative work and operations support, where is new business revenue coming from? The best business advice I ever received from a mentor was “lead with your marketing foot”. If you want to improve business profitability, than six hours of your work-day should be allocated to bringing in new and repeat business. If you’re good at admin and operations than hire out marketing and sales. If your forte is marketing and sales than hire out admin and operations. Whatever your flavor make sure you appropriately allocate your time and personnel to where the revenue truly comes from. The rest is just “busy work”. Who cares if your busy….are you making any money?

Kill unprofitable products or services

Businesses of all sizes struggle with divisions, products or services that are not profitable or border-line break even. Usually, these products and services stay in existence because the more lucrative products subsidize the laggard services. Improving business profitability is learning to identify and cut-loose the unprofitable products and services. Then reallocate the resources of the dying product or service into a profitable division. In some cases ending the product or services is inevitable because it is a monetary disaster, never fall victim to your own pride, just end it and move on.

Regardless of your business size, following these three fundamental steps is the yellow brick road to improving business profitability and efficiency. Good Luck and- Dream Big * Be Great.