As of November 2021, more than 103,000 new businesses emerged in Singapore. But at the same time, over 73,000 companies closed down. This is mostly the pandemic’s fault, but how come many new entrepreneurs succeeded?
It’s partly due to the government. They committed substantial resources to help businesses survive the onset of COVID-19. They’ve also helped businesses prepare for its aftermath. But of course, many companies depend on international trade to keep their operations running. As such, they can only do much with the financial aid they receive from the government. Until the world goes back to normal, supply chains will keep experiencing disruptions, and therefore, many businesses will struggle.
Thankfully, not all struggling businesses are doomed to shut down forever. If your small business is at its lowest right now, take these steps to dodge closure:
1. Identify the Causes of Your Declining Profits
The first step to solving a problem is identifying its causes. There are several possible reasons your profits have declined. But all the reasons can be classified into two leading causes: a decline in sales and an increase in expenses.
It’s possible to lose sales money without losing profit. If your primary source of income is operating profit, expenses are likely the reason you’re losing sales. For instance, if you sell S$5,000 worth of T-shirts, but your manufacturing and overhead costs are S$8,000, you generate S$3,000 of operating loss. But if you make S$15,000 in royalties, you can still earn significant profits.
On the other hand, if you’re losing sales, it means your marketing strategies aren’t working. But it’s also possible to increase sales and lose profit. This can happen if most of your sales come from low-margin items, and you can’t sell the high-margin ones. Hence, track your sales by margins, distribution channels, territory, and other factors even if the business is booming. This will help you spot trends that may lead to problems.
2. Identify Internal Issues
Sometimes, it’s not your competitors that threaten your business but your team itself. Your sales department could be failing. Maybe you hired the wrong people, or they lack proper training.
Conduct a sales audit to determine if their weaknesses are causing your profit decline. If they’re indeed the cause, consider re-evaluating the team or re-training them.
Check the practices of your management, too. Missteps by leaders can cause considerable damage to a business. If their social media persona is unlikable, for instance, their followers could assume that your business tolerates it. As a result, they may stop supporting your business because of conflicting values.
The management represents the business. Hence, remind your department heads or team leaders to act according to your company’s values and culture. Even if they do something for personal purposes, it can affect the business if they show it to the public. So advise them to be careful with everything they say or do publicly.
3. Fix Customer Service Problems
Poor customer service could also be an internal problem. But this may require special attention because it can be harder to control. A viral social media post may come next once a customer leaves your store unsatisfied because of poor service.
Customer service is key to providing a good customer experience, which will directly affect sales. So train your customer service team thoroughly. Create standards or protocols for particular situations. Choose your employees with care, too. Someone in service should preferably be extroverted, as they make people comfortable easily. Hiring shy or reserved people may cause misunderstanding from your customers if they don’t even get a smile or a jolly greeting.
4. Take Out a Business Loan
If declining operating profits are your main problem, you can take out a business loan. It will allow you to buy inventory or increase your working capital. It is especially beneficial if you have a peak season. For example, if you anticipate an influx of sales every Christmas holiday, take out a loan to buy inventory in advance. That way, you can avoid losing sales because of unavailable products or services.
If you need the loan to increase working capital, note that your lender may consider you a high-risk borrower. As such, they may charge a higher interest. This won’t be a problem if your business has good credit. But if you’re already falling behind your other payments, be extra careful. Mismanaging your business can cause it to spiral into bankruptcy.
Studies show that these methods work in reversing a decline in profits and/or sales. Still, study them carefully because what works in one business won’t automatically work in another. Work with a team that’s committed to your company’s success. Your collective efforts are keys to pulling your business out of the deep water.