Research for South Africa shows that 50% of new businesses fail within 24 months of launch, and 70-80% don’t make it past 5 years. The reasons why small business failure is so rife are a mixed bag of internal and external factors, like inadequate cash flow, insufficient startup capital, mismanagement, and not getting enough institutional support. However, the Covid-19 pandemic, national lockdown, and ongoing restrictions to trade and movement have added a whole new tier of difficulty to an already precarious stack of entrepreneurial odds.
As soon as you feel like your business is on a downward spiral, and you’re losing control, stop and do something about it. Don’t become sucked into the vortex of denial, and don’t allow yourself to become discouraged: whether you end up being ‘past the point of no return’ or not, you’ll want to look back on this time knowing you gave it absolutely everything you had to turn things around. In order to do that, you need to stop thinking about your business (and yourself!) as a victim of small business failure, and focus on what you still can do.
1. Change your mindset
First things first, take an enormously deep breath and stop looking at this as a huge train smash. If you want to find a way to bounce back, you’re going to need to muster the internal strength to silence the doomsday voices in your head and focus on what you can do to rebuild. Acknowledge your darker feelings, ask yourself whether they’re actually necessarily true (or helpful), reassert your commitment to getting through this, and then tune them out. It won’t be easy or feel natural at first, but it’ll become habit. You could also consider first taking a real break to get some headspace, there’s a good chance that after the year we’ve all had you’re burned out.
2. SWOT it up
Perform a basic SWOT analysis. That means breaking down what you perceive to be your business’s main:
- Strengths: lean into what is working
- Weaknesses: areas that need some creative rethinking and problem-solving
- Opportunities: currently untapped external factors
- Threats: the stuff keeping you up at night, like aggressive competitors or a pandemic that is changing consumer behavior across the globe.
It’s a great way to take a balanced look at your overall performance, where things need to be improved, and what aspects of your business strategy need updating. Here’s a great (free) tool to help you perform a SWOT analysis. Use your results to set goals for the future that are practical and proactive.
3. Consider your price
It sounds like the most obvious thing to say, but small business failure is often caused by incorrect pricing. It’s imperative that you assess every aspect of what contributes to the cost of providing each unit of product or service, and make sure that your price covers that (and then some). Often overlooked expenses, like overheads, can easily throw off this calculation and create a confusion around what you should be, or could be charging. Check out this article for more help on how to get your price right. And while you’re at it, have a look at Yoco’s guide for safeguarding your finances during a pandemic.
If you still have enough money in the kitty to keep the operation afloat, but you’re struggling to make enough sales, you could consider rebranding your business. This can be a full-scale overhaul, like changing your name and what/how you sell, to less drastic measures like refreshing your advertising to appeal to a different demographic. A large-scale overhaul can be pretty expensive and time consuming though, so make sure it’s really what you need to do to avoid small business failure, before throwing away any hard-earned brand recognition in the process.
5. Cut costs
If you can’t afford to pay the bills, cutting the fat should be your first priority. That could mean simplifying and streamlining your product offering, letting go of ‘nice-to-have’ contracted services, and eliminating any wasteful spending on luxuries like travel or company perks. Get totally pedantic about cutting costs throughout your operation: from what detergents you use to clean, to how much electricity you’re consuming. The very last thing you should consider is retrenching people, so first try reduce working hours or negotiate salary cuts.
6. Manage your cash
Create a cash flow forecast so you know exactly what’s coming in and going out, find the holes, and get creative about plugging them. For example, can you avoid disaster by timing certain payments differently, or make instalment payments for larger bills? Add these details into your plan, tracking when you’ll pay what, according to urgency. Sending out invoices on time and getting more organised with following up on outstanding bills is also a necessity. Either way, it also helps to prioritise your repayment schedule: your employees should always come first; then anybody who could shut your business down (like the landlord); followed by goods and services you can’t do without; bills (like tax) which would incur serious late penalties; and finally look to the next overdue creditor in line.
7. Stop hiding: talk to your creditors
Most businesses have debts to pay – it doesn’t mean you’re necessarily dealing with the risk of small business failure, and it’s part of the package deal for many. Plus, businesses with debt usually have better credit ratings than those that don’t. Instead of feeling ashamed or guilty about it, rather sit down with your creditors (digitally) and explain your circumstances openly and frankly. Draft a plan of action for paying them back once things improve, show them how you plan to resurrect revenue, and let them see just how committed, passionate and energetic you are about making a serious comeback. You never know, you may even get a better payment holiday than you’d expected.
8. Get some funding
When you’re already showing signs of small business failure, it may be tough to find external investment. However, there are ways to motivate an application successfully, especially at a time when such extraordinary external challenges are at play. The problem may not ever have been you or your business – and a smart investor will be able to recognise that. Alternatively, turn to family and friends or look into taking advantage of Yoco Capital. And, although national Covid-19 relief resources are strained, don’t forget to investigate what kind of support you may be eligible for – check out this article for some guidance
9. Take everything online
Renting physical premises can be cripplingly expensive. Not only that, but staffing a store adds a whole new layer of expense and complexity to the model. With the covid pandemic scaring many shoppers away from public spaces, businesses are struggling to get feet through the door, and increasingly shifting their entire operations online. It’s much easier to manage an online business from home, with far fewer operational costs. Before you even think about selling or closing down, consider whether an online version of what you do could work instead. Here’s how to get started.
10. Sell your business
This is never a decision to be made lightly, or when you’re over-tired and emotional. It should be a last resort, but it’s not the same thing as giving up – hopefully you’ll still get something for all the hard work you’ve put in. Find someone who specialises in business sales in your industry, to make sure you get a fair valuation and a professional who understands and can support you through this painful journey. Being the leader of a business is incredibly tough, especially so when you have to be the one to make the painful call to shut down. If that’s what you have to do, then you’re still leading by making the right decision. If outright business closure is your only option, do your best to do so gracefully – here’s how.
Nobody could have foreseen the Covid-19 crisis, and all its devastating ramifications, but there are some things small business owners can do to create habits for better financial resilience in the future. Know that whatever route you take, you will get through this, and you will feel inspired again. The best you can do now is act with integrity, treat others with humility and honesty, and move forward in the most responsible way you can manage.