Five Signs that your Business needs to be Restructured
Businesses don’t typically grow straight to the top. Instead, they go through ups and downs over their life cycles. To manage the down periods, business owners and CEO’s need to be aware of the warning signs that may indicate that there is potential problem brewing. In our view, there are 5 signs that may give you an indication that there is a need to restructure a department within the company or perhaps the entire company:
1. Too many errors or customer complaints
In one of my businesses, I had to place orders with a vendor all the time and on average I realized that 3 out 5 orders were incorrect or late. For several years this went on, until I finally found a replacement vendor and moved all of my business to the new vendor. In today’s world having a 60% error rate is simply not acceptable regardless of the industry. Sooner or later customers will find a replacement and your company will be out of business. This is a classic example of how one medium size company doesn’t pay attention to production errors that probably happen because of faulty procedures and/or training/communication issues.
2. Working too many hours all the time
There is a clear difference between having to work long hours because of a special project or because of an acquisition, a natural disaster or for any other isolated event. If your company or department seems to be in a perpetual state of chaos every month with long hours, low morale and many errors, there is probably a need to pull out a white board and brainstorm some ideas to improve this situation. Either you don’t have the right people/leadership in place or the right technology or the right procedures. In many cases the reasons are all of the above mixed together.
A classic example is what we see in accounting departments every month or quarter when they close the books to produce financial statements. This process is plagued with long hours, few people, processes full of spreadsheets and in many cases not the right leadership. Many companies allow this to happen every single month/quarter without taking any action. You would think that after a few months of this situation someone would say, “there must be a better way”. In today’s age, where accounting systems have significantly evolved it is inexcusable not to take advantage of these advances in technologies.
3. The competition is killing your businesses.
If your competition is putting pressure on your prices, or on your delivery systems or on your customer service, it is time to evaluate what you are doing wrong and start with a blank sheet of paper in order to figure out not only how to match what your competition is doing but how to go above and beyond what they are doing. We all know what happened to Borders, the brick and mortar bookstore company in the US. Basically, their entire business model was outdated and they were not able to quickly make changes to it. See article: Reasons Borders went out of business
For a technology company the need to constantly redesign processes or technology is imperative as things happen so much faster in these industries. For instance, Blackberry reached over 20% market share back in 2009, today they represent less than 5% of total cell phone shipments. As we know, they lost all of that ground to Apple and Samsung. As much as they try to redesign their phones they felt behind exponentially every single quarter.
4. You are not number one or number two in your industry!!
If you are in a very competitive industry such as fast food restaurants, gas stations, app development, or computer distribution, your long-term plan should address how to reach the top of the pyramid. The number one or two companies in your market are usually able to negotiate better terms with their suppliers, they are able to have better credit terms or they are able to attract better employees and customers. If you are not on the top of the food chain, your business has the risk of becoming irrelevant over time. Recognizing where your company is and having a plan to reach the top is a must in many industries.
5. Your business is growing too fast or not growing at all.
Obviously, not growing at all is an issue for any entrepreneur or any company for that matter. But in many cases a company may be enjoying and celebrating a 50% growth and not paying attention to what is happening in the back office. We often see this in technology companies, but it could happen to any mainstream company.
In summary, it is the job of the business owner/CEO to be watching for these signs early enough in order to make the necessary changes. Some changes take years like new systems, some take months like hiring the right people and some take hours like being aware of the signs and start assembling a plan of action.
Ricardo Lowe, CPA
RLowe Consulting focuses on helping clients start new businesses and on developing growth strategies. Specifically, we assist companies with business plans, business strategies, process improvements and cash management.