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Risk Management

Seven Signs Of Trouble That Can Threaten A Business

Is your business performing as well as you’d hoped? Review these seven challenging business conditions to determine if your company needs a rescue plan.

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Understanding more about the financial performance of your company will help you see trends as they are developing and not wait for a crisis.

Some problems are acute — they happen suddenly — and some are chronic — they go on for years and you learn to live with them. Here are seven situations that should put up red flags.

1. Little or no revenue growth

Early-stage companies normally experience substantial growth as customers find you and your market enthusiastically.

Then there is a leveling-off period when growth seems to slow and then stop. It may work to spend a short period at that plateau while you allow your business systems to grow to handle the volume.

But then you must look at ways to get back on the growth path.The reasons not to do so are understandable.

You may be working 50 to 60 hours a week just to handle what you have and there is little time to find new clients, even if you thought you could handle their business.

But growth is a necessity — because even with a reasonable level of inflation, flat revenues really mean a loss of revenues in terms of real rands.

And, as you know, the costs to operate your business never go down. Rent, utilities and telecoms are always going up. And wages too, including your own.

As your employees become more experienced, you will want to pay them commensurate with their contributions, so raises are understandable, in benefits as well as salary.

You may have added insurance and additional leave time. All of this has a cost. And you need to replace and update equipment as well.

So what effect does flat growth have with this scenario? It lowers your profit. Costs become a greater percentage of revenue and ultimately profits become smaller.

It may begin to create a serious cash squeeze and imperil your ability to pay debts and keep up with needed equipment purchases or repair.

2. Deteriorating capital base

Periods of flat growth in revenue can cause a negative cash flow. You need a steady stream of profit to allow cash to pay principal debt service and allow for reinvestment in new technology, equipment, or new project development.

After a fairly short time, you will find yourself in a double bind. You aren’t generating enough cash to fund any meaningful growth and this lack of profits may prevent you from borrowing to fund it as well.

If you have reached this point, chances are your alternatives are few. One may be to look to outside investors for funds, although you may have to give up a good bit of control to get the capital you need.

The other possibility is to sell off assets to raise cash. This may be a dangerous strategy, without considerable thought.

You don’t want to sell something you will need later on. Selling slow-moving inventory at a loss will affect profits as well as solvency.

3. Equipment failures that threaten productivity

Not having positive cash flow will not just jeopardise growth; it will also affect current operations.

If your equipment is not operating properly, your production may be slower, or quality not what you need or expect.

In addition, total breakdowns will stop production and cause employees to stand around not accomplishing any work. This will raise your direct costs and lower profits even further.

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4. Poor employee morale

Look around at your employees and give close consideration to what you see.

  • Are they angry, disillusioned, or confused?
  • Are they short of inventory, working on substandard equipment, or always fending off threatening phone calls?
  • Are you communicating with them?

Surely you know that having good employees is a contributing factor in the growth and success of your venture. So it makes sense that when (and if) they feel negative, this will have the opposite effect.

The most immediate result will be diminished productivity. People who don’t care, show it. They take more time off and seldom think of ways to accomplish the task at hand more quickly or more efficiently.

And remember as well, your employees are often the public face of your company. If they have gripes, that’s where they may air them.

5. Unpaid taxes

No business owner sets out to get into trouble with the tax collector. Most of us have enough sense to know how painful that can be. But it may start accidentally and grow quickly.

It often starts with a single payroll when the money isn’t fully available. Paycheques are issued with the expectation that withheld taxes will be covered as soon as customers begin to pay outstanding invoices. But by the time these payments are received, other bills have to be paid or another payroll is coming up.

Before you know it, taxes are owed and the money just isn’t there. Now you’re on dangerous territory.

6. Failure or closing of major customer

Most new businesses are warned about becoming dependent on a single customer or even a few. That’s easy in theory, but often difficult in practice.

When a customer offers you a lot of business, it isn’t easy to turn it down. If you’re in an industry where there are only a few players of any size, this may be your reality.

If it is and one of these major customers cuts back operations, files for reorganisation, or closes, your entire business may be jeopardised. So pay attention to what is happening within the industry as well as with your customers.

If payments get slower, take some action. If the company is big enough, the accounting side does not talk to the purchasing side, so you won’t lose the business.

Anyway, if you’re not going to get paid, you don’t want the sale. I had a client who was a small electrical contractor who allowed a major company to get so far behind that my client had to file for bankruptcy. Minimise your exposure.

If orders slow down, don’t wait until they stop: Get out and look for new business. At the same time, keep your lines of communication up with your customer. These are the times when you have to work hard just to stay even.

7. New technology creating pricing pressure

The years bring new technology: If older companies cannot afford to keep up, they’re likely to be unable to compete.

Labour-intensive businesses must be able to avail themselves of labour-saving devices. Pricing pressures come from those domestic companies that can afford to do so in addition to the offshore operations that use low-cost labour. Staying in business without making a profit makes little sense.

These are not the only serious problems a company can run into. I could write a book about the perils of the dot-com companies, their overuse of venture capital and underuse of business models.

Regardless of how new an idea is and how clever the folks who thought it up, business is now and will always be about revenue exceeding costs and creating profit. This is not a theory; it is a reality and you must have a stream of income.

The latest and greatest idea may come and go, but at the end of the day, it’s hard work and good dealings that secure the future for most businesses.

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How To Choose The Right Group Risk Cover For Your Business

Your clients and business partners are likely to be your main focus when you start out as an entrepreneur. But as your venture grows into a fully operative business of scale, your employees will matter just as much. That’s why it’s important to ensure you provide adequate employee benefits, and when it comes to group risk cover, it’s becoming increasingly important to find a solution that matches the needs of everyone in the business.

Schalk Malan

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It’s no secret that the world of work, as we know it, is changing. In a 2017 employee benefits study, US insurer MetLife found that 58% of employees surveyed “want customised benefit options based on their personal information”. And according to the same study, 73% of employees believe their employer is responsible for employees’ health and financial wellbeing. And in spite of this expectation, modern employees are unlikely to stay with the same employers for very long, because technology continues to create new opportunities.

It is within this context that it’s important for you, the business owner, to make your business as attractive as possible by offering your employees benefits that truly match their needs. Start by thinking of yourself as a custodian of their financial security. And in terms of group risk cover, the financial security not only lies in the cover itself, but in offering benefits that add real value to your employees’ financial planning – especially when you consider that it is your employees who are contributing towards their cover.

Why do you need group risk cover for your business?

Employers buy group risk cover for the people in the company to cover their future pay cheques in case something happens where they can’t work before they retire.

But this, unfortunately, is not the case with traditional group risk products, which typically offer blunt amounts of cover that is equal to, for example, three years of pay cheques for everyone in the company – irrespective of how many pay cheques they have left before retirement. As a result of this approach, younger people in the company have less cover compared to what they need, relative to their older colleagues who have fewer pay cheques left

Traditional group risk products also offer very little flexibility, leaving employees with little, or no option to buy more cover above what employers secured. They also don’t offer a choice between lump-sum or recurring payouts when members claim, or always secure the ability to take their cover with them, should they decide to leave the company.

Related: How BrightRock Is Rocking The (Industry) Boat In Only 5 Years Since Launch

So how will you know you’ve selected the right cover?

Start by asking your financial adviser to look out for a product that works out how many pay cheques each employee needs to cover, and then gives every person in the company the same level of cover in proportion to the amount of pay cheques left until retirement. By following this approach, your employees’ cover will provide more people in the company with much more cover. There already are forward-thinking group risk cover providers in the market that manage to offer up to 50% more cover by following this approach.

Secondly, ask your financial adviser if your employees will be able to buy more cover over and above what you secured. There are innovative products on the market that offer up to double the cover free of underwriting, which enables your employees to benefit from the insurability you’re providing them, and to close gaps in their insurance.

And – in the spirit of the modern world of work with a more mobile workforce – these innovative products enable employees to take the cover with them when they decide to leave your company.

It’s also important to ask your financial adviser if your employees will be able to choose between a lump sum and recurring pay-outs when they claim. Traditional group risk policies tend to expect employers to make one choice  between lump sum or recurring payouts on behalf of all of their employees when they take out the cover. Forward thinking cover providers have turned this approach on its head, offering employees the option to choose between recurring or lump sum payouts when they claim.

The importance of claims certaintly should never be understated, starting with obtaining a clear picture of the clinical conditions the group risk cover actually covers. There are new players in the market that provide extensive and transparent lists of clinical claims conditions for additional expense needs, covering more than 200 conditions.

And exactly how permanent does the insurer view a claim for a permanent condition? For example, if an employee is to be diagnosed with Stage 4 cancer, will he or she receive a 100% payout on diagnosis, without the prospect of ongoing reassessment? A needs-matched product offering would never require the reassessment of permanent expense needs claims.

In conclusion …

You wouldn’t expect your employees to work under dangerous conditions. So why would you select a group risk product that will not serve in their best interests when they need it most? That’s where needs-matched group risk cover comes to the rescue – not only for your employees, but also for your business by providing security and benefits offering real value in the modern world of work.

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Risk Management

How to Take Risks That Win (Almost) Every Time

Knowing which risks to take, and how to take them, can be extremely helpful in stacking the odds in your favour.

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Looking 13,000 feet down out of an airplane, parachute pack secured, your heart beating in your throat, must be one of the most terrifying experiences imaginable. Though not all risks are life-threatening, all risks are frightening. As humans, we’re constantly afraid of failure, of doing something wrong and of having to deal with the consequences. Yet, at the same time, there is nothing more rewarding than reaping the benefits of a risk gone right – of landing safely ground, to build the earlier metaphor.

For entrepreneurs, risk taking is a necessity of the job. After all, we’re never quite positive that things are going to work out the way we envision. We make choices daily which affect our business, and we can never be absolutely sure that we’re making the right ones.

Knowing which risks to take, and how to take them, can be extremely helpful in stacking the odds in your favour. While risks are unavoidable, approaching them strategically can be the best way to decrease your parachute’s chances of failing, so to speak, and to produce measurable results that you would never have achieved had you avoided the risk in the first place.

Related: Dream Big, Plan Well, Minimise Risks Says Braam Malherbe

In order to hone your risk-taking skills, here are some guidelines:

1. Information is your friend

The more knowledge you have about any given topic, the less risky your endeavours will ultimately be. For example, many of the most steadily successful brokers on Wall Street are those who understand the patterns of the market better than anyone else. While there are always going to be those people who make millions off a risky uninformed bet, they are the same people who most likely will lose all their earnings on a single trade. Traders who build a sustainable career for themselves are the ones that have deep knowledge of the industry.

Similarly, you should be an expert in your field. You should know your industry well – your product or service you are providing. You should understand the buying patterns of consumers, their motivation and pain points. What drives them to buy your products? Where and when do they buy? What makes them stop buying?

As an entrepreneur – or in any profession that requires risks, really – you’ll want to have as much information as possible. The more you know, the fewer unknowns there are. The unknowns, ultimately, are what makes an action risky.

2. Assess the risk carefully

While risk is a reality of life, there is also something to be said for strong assessment skills. Being able to look at a risky situation and decide whether or not it’s worth taking is a hallmark of a good businessperson.

Venture capital investors, for example, spend their entire careers deciding which companies are worth risking time and money on. Those who throw their money around recklessly, while admirable for their risk-taking, are not necessarily the most successful investors.

Being a good risk-taker involves using the information you have to assess a situation and decide whether or not the risk is worth it.

Related: 5 Infamous Risks Every Entrepreneur Must Face

3. Learn from failure

Appreciate that all risks are learning experiences. Especially those that don’t pan out.

On some accounts, failure is actually more valuable than success. While failures may not lead to an increase in your bottom line, you can use the opportunity to glean important information about what you’ve done wrong, where you misstepped and how you can move forward in the future.

The biggest mistake many people make is seeing failure as a measure of who they are, rather than a measure of where they can go. We’ve all heard that failure is feedback. Most successful entrepreneurs failed at many ventures before they created that million-dollar offering. Most overnight successes took many years to make. If you take a risk and fail, learn from it. Ask yourself what you can do differently next time, and then move on. The only failure is not learning the lesson that it provides and using it to hone your next endeavour.

According to Mark Zuckerberg, “The biggest risk is not taking any risk. In a world that’s changing really quickly, the only strategy that is guaranteed to fail is not taking risks.”

Taking risks is the only way to go from here to there. Even failed risks move you closer to your goals if you can turn that failure into valuable learning and a plan for improve your results next time.

This article was originally posted here on Entrepreneur.com.

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Risk Management

Are You Focusing Too Much On The Little Details (And Forgetting The Bigger Picture)?

To what degree do outside influences impact your business’s success? As a business owner, should you be focused on your business, or taking a macro view of the world?

Nicholas Haralambous

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Entrepreneurs live in the daily grind of their businesses. This is unavoidable but can often be fatal. Day to day we think that the little things matter more than the very big things do. A little thing like the floor of your office or store being mopped daily can become a huge issue if not done.

Sure, these things are important because they create a culture of care and pride, but what you might be missing while you watch your team mop the floors is the macro-economic climate shifts that happen more rapidly than you think.

Step back to move forward

Early in the life of a new business the only way to survive is for the founders to do absolutely everything. From designing a logo and launching a strategy all the way through to writing tweets and emailing customers when there are issues.

This makes sense when you’re building a business, your team is small and your cash is tight. However, as you grow, it becomes important to let your people do their best and take on the day to day work.

Related: Expanding At The Speed Of Stress

As an obsessive entrepreneur it’s often hard to let go of these little details. Day to day operations will always be integral to the growth of your business and an important part of someone’s job in your organisation. However, it shouldn’t be yours if you are taking care of the big picture.

As the leader of your business you need to take a step back from the grind and look at the world around you.

To truly understand the positioning of your growing business you need to understand your country, continent and world.

You should understand the economic position you’re in as well as that of your province, country and even the markets that might directly influence your sales. Get a good understanding of the political stability of your country and the world.

Finally, you should figure out if there are any large- scale impending disasters. If disaster is imminent, like Zuma pillaging a nation and tanking an economy, then you have to get your head out of the floor mopping and into the high-level strategy of survival and preparation for disaster.

Move the needle

business-solution

Every day there are 24 hours that you can fill. You can choose to work during that time and faff with the things that were once important, or you can figure out what is going to move the needle in your business.

What is going to really help you survive and grow in the years to come? Founders, CEOs and leaders need to be thinking about the next three, five and ten years. Let your team worry about today. Let the smart people you work with make today and tomorrow and next week work.

Chances are, the things you are doing in the hours/minutes aren’t saving your business or moving the needle. It’s the things that you plan for the next six months that affect the next five years.

Related: 8 Rules To Build Wealth When You Weren’t Born Into Money

Don’t live in a bubble

It’s easy to fall into the trap of thinking that you live in an isolated country or region that isn’t affected by world events. Unfortunately, no matter how hard you close your eyes and hide your head under the pillow you can’t avoid the fact that your business exists in a globally connected environment.

At Nic Harry we were affected by the Brexit events that unfolded in the UK and Europe. British shoppers were scared and didn’t spend their money when they were on holiday in Cape Town over the peak holiday season. I was so busy preparing for the seasonal uptick that I missed the link between a huge global event and my sales.

You live in a world that is filled with online shoppers and tourists who visit your business whether you know it or not. Prepare for the world to start having an effect on your business more and more.

Broaden your view

I am always fascinated by the narrow view of the world many entrepreneurs display. I may sell men’s socks, accessories and style but that doesn’t mean that the mining sector doesn’t affect my business.

Related: How To Plan, Prioritise And Get It Done Now

Even if you were an entrepreneur building a business in Antarctica I would urge you to read about oil prices, political world events and the intricacies of overfishing in the South American seas. Being well rounded and having a broad view of the world and your business can only make you a more robust thinker who sees more angles to exploit, protect against and thrive on.

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