Would you know it if your business was in decline? According to a white paper [PDF] produced by compensation data company PayScale, a business can enter a state of decline before it becomes obvious to those in charge. In fact, sometimes managers or owners can be in such a state of denial they don’t realize their company is in decline until it’s nearly too late. The paper’s authors say there are management and operational signs to watch for, as well as signs in the areas of finance and marketing that indicate a business may be declining. But if you catch the signs in time, they say, you can take steps to get your business back on track. Here are the warning signs to watch for.
Management and Operational Signs of Decline
According to the paper, managers’ attitudes can play a significant role in a company’s decline because these attitudes tend to drive the cultural factors that can contribute to a decline. Factors to look for include:
- Closed-mindedness stemming from a reliance on tradition or history rather than real data. This leads to a “near disdain” for learning because minds are shut off to new ideas. In other words, if you have always done things a certain way and refuse to look at other options, it may be a signal that your attitude is moving your company in the wrong direction.
- Certain groups receiving favor in compensation, resources, and attention, while other groups barely receive what they need. This leads to decreased efficiency and a low morale. For example, small-business owners may lather their top salesperson with praise and compensation, while ignoring their front office help.
- Managers acting on what’s best for their departments, rather than taking the overall good of the company into consideration. Employees in small businesses can do the same. For example, your accountant may make decisions solely based on the bottom line, while ignoring what’s best for your customers.
- Those in charge become inwardly focused, which causes them to lose sight of the bigger picture, such as corporate goals. When this happens, they begin to blame others for the business decline, such as customers, competitors, market fluctuations, and other external forces.
These attitudes and behaviors, according to PayScale, can lower morale and a result in a lack of individual accountability, as well as a higher turnover rate and internal conflict.
Financial and Marketing Signs of Decline
According to the paper, a decline in business due to financial and marketing failures typically originates from weaknesses inside of the company, rather than outside pressures. Here are the six signs listed for these areas that indicate a business is headed for trouble:
- Sales are inadequate and diminishing.
- The company doesn’t have a grasp on its budget and working capital, which leads to weak control over day-to-day operations or causes the owner to recklessly expand.
- There are insufficient financial controls in all areas of the business resulting from bad financial management.
- Problems with market share, such as improper pricing, or a failure to respond to or keep up with changes in the marketplace. PayScale says a reduced market presence is a sure sign of trouble brewing.
- Those in charge resist change because they have come to believe that things should stay the same because they’ve always been that way. It’s important to remember that sometimes, a process that once led to success in a company can also lead to its failure.
- When employee turnover is high, it is often because workers are not being paid enough — or are not receiving other forms of validation — to make them want to stick around or stay engaged.
Those in charge of a business must take the first step to reverse the decline, PayScale says. You have to be willing to take a good look at yourself to determine how your decisions and attitudes contributed to the decline. Ask yourself, “Why are we in business?” and “What do we hope to achieve with this business?” Once you know the answers, you must address the issues that caused the decline.
You don’t have to go it alone. The paper suggests that business owners can hire a consultant or a business coach, or gather together an executive peer group to get objective advice from knowledgeable people.