Whether you are a Fortune 500 CEO, a first time entrepreneur, or a single parent trying to find extra money for your child’s tutor, we all understand the intense pressure of balancing income and expenses. Yet, aren’t we always a bit surprised when a popular corner bakery closes or our favorite bookstore franchise goes under? Honestly, I was shocked (and my taste buds were devastated) when my favorite cupcakery, Crumbs, shut its doors this year. Also, this subject hits close to home because it happened…to me. I closed my small businesses after operating for nearly a decade. It was a brutal and heart-wrenching experience, but there were signs. Here are 4 Signs Your Biz Is In Trouble:
1. The Tax Man Cometh Is At Your Door! Payroll. Sales. Property. Taxes are huge line items for any business, but they are an immense portion of the small business’s expenses. If you fail to pay in any of those categories, either the Internal Revenue Service (payroll) or your state (sales and property) can close you down–quickly. An excellent (i.e. not “cheap”) accountant is essential in avoiding this common pitfall.
2. You Can’t Get A Line Of Credit. It’s counter-intuitive, but sometimes it’s more difficult for an existing business to receive a line of credit than a start-up. Why? Because you are a “proven” risk instead of a “theoretical” risk. Your expenses are too high and your revenue is too low. Also, it’s likely that you have exhausted your personal credit to keep things afloat. That’s definitely a red-flag for banks. They will be putting “good money after bad” by loaning you money for cash-flow purposes instead of expansion. It’s an awful position to be in, and many businesses (not just small) quietly suffer in this space.
3. Your Payroll Expenses Are Too High. Payroll is normally the highest expense any company has and we regularly read about companies cutting jobs. Why? They are making drastic cuts in hopes of being profitable. Watch the show “The Profit” and you’ll witness all the challenges a small business owner faces. Frequently, the host focuses on payroll reduction as a way for the company to stay in business.
4. Your Customers Are No Longer Spending. In my case, I closed during our global recession. I had hair salons and day spas, which are typically thought to be “recession proof”. However, a few things happened to my customers: a. they stopped getting their hair done frequently or went “natural”; b. the spa clients disappeared all together and c. my retail clients could now purchase their products at Target or other large retailers. All these events took place within 6 months. Moreover, layoffs (or threats of them) made my guests dramatically alter their spending habits. And, finally, with local and national banks hiding in a “witness protection program” and failing to loan money, I had no capital to weather that perfect storm.
If you too are in the middle of a perfect storm with your business, I offer the following suggestions. First, look for unconventional financial sources, such as crowd-funding sites (www.gofundme.com, www.kickstarter.com and www.indiegogo.com) and angel investors. Second, if you are a woman-owned business, the Small Business Administration states that it is committed to assisting women owned business, so make them prove it and reach out to the agency, who claims to adjust stringent lending standards. Finally, reach out to your loyal customers. As my mom (and your mom too) said: “A closed mouth don’t get fed.” Let them know your situation, and many will do what they can to assist. The good news is the economy is rebounding, and folks are spending again! With hard work, key allies and some out-of-the-box strategies, now is a great time to turn your business around.
Nicole Cober, Esq. is a partner at Cober Johnson, a law firm focusing on trademarks, brand licensing and small business consulting. She is a former small biz owner of the award winning chain, Soul…Day Spa and Salon. She is also a Legal Consultant for Washington DC’s NewsChannel 8 and author of soon-to-be released book: “CEO of My Soul: The Dos and Don’ts of Small Biz”. Follow her on Twitter @CoberJohnson and like her on Facebook @facebook.com/CoberJohnson. Visit her website at www.coberjohnson.com.