Every CEO’s nightmare is watching the bottom line turn from black ink to red. Your company was once at the top of the market, raking in the cash. Now it’s losing money, and you’re trying to get back on track. The struggle to stay in the black reminds me of AC/DC’s “Back In Black:”
So look at me now, I’m just makin’ my play; Don’t try to push your luck, just get out of my way; Yes I’m back; Well I’m back in black
— AC/DC, “Back In Black”
Unfortunately, the switch from red to black doesn’t happen overnight. It requires proper financial planning, better processes, and possible a redefined business model.
Stay on top of your finances
One thing I’ve found is that many small business CEOs are horrible with numbers. Many are adept in the technical aspects of their product or service, but lack knowledge in the financial side of the business. It’s safe to say they aren’t all financial geniuses – I’ve personally struggled with this when I started my company in 2001.
As a result, CEOs get in trouble either by not watching their finances carefully, not hiring people to handle their finances, or not watching the people they hire.
On top of having access to financial experts, CEOs need to make sure they have the right reports to run the business. One of my favorites is to have a cash flow forecast so you are looking through the windshield and not just the rear view mirror, as most of us do. This alone will help you make decisions going forward and keep your business in the black.
Don’t be lulled to sleep when things are going well either. I made that mistake before the recession. We were rocking and rolling with a solid bottom line, and I found myself approving small expenses without much thought frankly. A few hundred here and a couple of thousand there, and soon we are talking about real money!
Remember, revenue hides a lot of back office and organizational problems, so examine ways to improve even when you are killing it on the top line.
Tweak when necessary
Leading into and during the recession, I made a few tweaks to keep my business afloat. Unfortunately, I didn’t do most of these things fast enough, and I paid dearly for it.
- Use variable vs. fixed cost solutions wherever possible (office space, outsource internal projects, outsource back office functions, use temporary personnel, etc.).
- Stay close to your banker at all times, including visiting with them once per year whether you need to talk to them or not.
- Consider utilizing banks who work well with smaller businesses, as your needs are different.
- Get funding and/or increase your line of credit when things are good so you have what you need when times get a little rough.
- If you have to lay off people, go deeper than you think you need to if you have any doubt about the future – one bigger layoff is better for employees to adjust to, than multiple cuts where everyone starts looking over their shoulder.
Adjust your business model
Taking inventory and cutting costs only goes so far to increase your profits. CEOs often forget to fine-tune their business model. Sure, you’ve built the perfect business model when you first started your company. But the environment, market, or economy might have changed since then – all that factors into your bottom line.
If you’re losing money or your sales are down, it could be that what you’re offering isn’t good enough anymore. Your first step is to look at your churn. If your customers are leaving you, you should stop and wonder why.
The case could be that disruptors are coming into your market, similar to the problem the taxi cab and limousine businesses now face with Uber. You might be used to the status quo, while other individuals are constructing innovative ideas to improve an existing industry, or creating products/services to disrupt the industry entirely. When that happens, you need to pivot.
I like to say my company Croix Connect is version 3.0, with the last morph being a survival move coming out of the recession. To stay in business, you have to be a Gumby. You have to be willing and able to change, to adapt.
Plan ahead to avoid financial hardships
One of the biggest reasons companies fail is because they don’t have the proper capital or financial backing. In the book No Man’s Land, Doug Tatum discusses a point where companies are “too big to be small and too small to be big.”
For instance, if you don’t have enough money or access to quick capital, you might not be able to bid on a major contract. That’s a missed opportunity that could have helped you scale your business. You may need to consider hiring either a CFO or outsourced resources to be your Sherpa through this financial desert.
I also see many companies struggling due to a lack of strong internal processes, which also hinders scalability. And finally, sometimes the management team that got you to this point, can’t get you to the next level.
There’s almost never just one reason companies find their way into the red ink, and there is also no silver bullet to get it back in black. If you have the correct financial planning, solid processes, and seasoned executive team along with the willingness to adapt as you grow, then you don’t have to worry about going back to black, because you’ll never be in the red in the first place.
“Back in black, I hit the sack; I been too long, I’m glad to be back.”
A variation of this post was published on LinkedIn.