Financial Alarm Bells

Planning, Security,

For business owners there are some circumstances that should trigger Financial alarm bells. These circumstances are the ones that should make you think carefully about your next steps, as they could affect the future security and success of your business.

It’s all too easy to deal quickly with events that crop up, without thinking carefully enough about the implications of your actions. After all, you’ve got a full inbox and a long to do list of other things to move on to.

So how do you know which circumstances are those when the alarm bells should ring. Let’s look at some examples:

You lose a large client.

It’s great having large clients or customers that routinely buy from you. You can develop your business without lots of marketing effort, and know that your customer understands your capabilities and the money keeps coming in. The risk though is that you come to rely on them. When they move on, or their business evolves so they need you less, they can leave a big hole in your monthly sales.

It’s really important to keep an eye on your customer list, and check regularly to see whether you have anyone on whom you’re relying for more than 15% of your business. If so, you need to would benefit from reducing that figure to reduce the risk. If you have anyone accounting for more than 50% of your business, you are at serious risk and should taker paid action.

Similarly, check whether you have a large percentage of your sales within one industry, such as construction. If that market contracts, you will feel it too.

You win a big project.

This should be time to celebrate your achievements! Once you have though, be sure to keep a very careful eye on the project to ensure that it doesn’t cause you long term problems.

  1. Make sure you get payment in regular chunks, or cash flow will tighten while you work on that, rather than a number of small jobs, each of which would be likely to be billed and paid whilst you’re working on the large one.
  2. Your marking efforts need to continue to replace the large project once it’s completed. If you stop, you’re more likely to end up with an expensive gap when you deliver the large project.
  3. Watch out for scope creep, where the customer asks for extra work to be completed without you increasing your charge. On a small project, a little extra can be absorbed, but if you look at a similar percentage on a large project, it can add up to a large figure. This is where team training and time recording can be so important.

A senior member of your team leaves.

Someone who’s been with you for a long time, at a senior level is expensive to replace, in several ways.

  1. Finding a replacement with the right experience and who will be a good cultural fit is hard. You may need to draft in extra support until the ideal candidate can be found, or need to pay a hefty recruitment fee to get the right person.
  2. Additionally, in a tough recruitment market, the salary you have to pay to secure the strongest candidate may be higher than you had been paying.
  3. Even once you have the right person on board, once they’ve served their notice period in their existing position, they will take time to get up to speed. You’ll need to give them support and training to help them settle and learn how you work.

All of this will affect the business, possibly for six months or more.

You’re moving offices, or refurbishing your existing one.

Such a step is exciting! It’s a big, positive move in the lifecycle of a business to need to move, assuming it’s for the right reasons, such as sustained growth rather than to smaller premises.

The problem is, it’s really easy for the costs of such an exercise to spiral way beyond any budget you had in mind, if you had one at all. There are a host of extra costs that you may not have considered, but that add up very quickly.

You’re also usually trying to juggle the arrangements whilst running a growing business, which can reduce the attention that you’re able to give to the project.

If you’re moving to smaller premises, perhaps because business hasn’t been going so well, keeping an very tight grip on the costs that go with the move is paramount.

You don’t have, or trust, your numbers.

Every business owner should be reviewing their business numbers on a regular basis. This is essential to be able to make strong, well considered decisions on any subject, from pricing to recruitment.

Alarm bells should sound if you don’t receive your scheduled numbers for any reason from your team. Is the reason you’ve been given entirely valid? Is there another reason why those haven’t been publicised to you? Missing reports are often the first warning sign that something is seriously wrong, and if its financials that are missing, then you need to investigate.

Conversely, you may receive the numbers but they don’t ‘feel’ right. If you have a good understanding of the business and the reports, you will gain a ‘feel’ for your numbers and know when something starts to look odd. Trust your intuition and ask the questions and follow them through. It could be a simple mistake, but there could be a serious underlying problem.

 

All of these alarm triggers are important, but this is not an exhaustive list, which will vary between industries and businesses. We would strongly recommend that all business owners make regular time to consider what their equivalent or updated list would look like. If we can help with any of the alarm bells in your business, please get in touch. We’re here to help!