How To Determine If A Business Is Truly Viable
By Daniel Steyskal, Trapezoid Business Services
Small businesses fail for a myriad of reasons. Some are poorly run, some are in a bad location, and some just don’t have the ability to add value to products. But no matter the odds, small entrepreneurs move forward boldly, sometimes willfully ignorant of the risks before them.
The same entrepreneurs who ignores risk will likely ignore signs their business is failing, waiting for a never-to-come big break that will fix everything. My main challenge when working with such clients is breaking through emotional or irrational thinking to demonstrate whether their business is truly viable or should close the doors ASAP. To assess if a business is truly viable, I use the following methods.
- Look At Raw Cost, Revenue, And Target Market Data And Gather It Using Your Own Methods
I love Kitchen Nightmares, specifically the BBC version because it is less theatrical. The suggestions aren’t novel, and are 10 years out of date, but the show provides deep insight into why a business owner keeps a failing business afloat. The emotional investment allows them to justify endlessly “throwing good money after bad” and, because of this, you cannot trust any data given by an emotionally-invested owner. Average ticket, food cost, depth of local market, and other key metrics are always distorted to justify keeping the doors open. To be an effective advisor, one must gather their own data and be able to demonstrate how it was gathered to change an entrenched opinion.
- Review Processes For Core Products/Services And Compare It To Competitors
When at a busy bar where patrons wait more than two to three minutes for service once they signal for a drink I inevitably see an operational mess. Bartenders are walking up and down the bar, garnishes are hoarded to one section, and there is a lineup at the beer tap. Lack of management means these employees are working against each other and possibly have a financial incentive to do so, but owners rarely look at these processes or are too busy to do so. Many think such evaluations are silly asking, “Why does shaving 40 seconds off each ticket matter?”, but an effective advisor will show how these efficiencies translate it to double digit increases in revenue. Additionally, many clients who need more revenue cannot structurally accomplish that without drastic changes to process and sometimes cannot practically do so at all.
- Interview Key Stakeholders In The Business And Get Them To Buy Into The Process
One doesn’t start assessing the viability of a business unless the owner is somewhat open to change, whether in themselves or the business that is an extension of themselves. A key question is whether or not staff is also willing to adopt new ways of doing things — especially if entrenched processes or opinions enrich an employee at the expense of an owner. Furthermore, employees— especially hourly employees — are keenly aware of problems data or speaking with the owner will not reveal, though they may not articulate the problem directly. Unfortunately, many employees — especially managers — see an advisor as a competitor or someone to work against, but those worth keeping will buy into change if they truly want the business to succeed and are respected during the process.
- Don’t Focus On Problems Beyond Identifying Them
If a problem has a solution, accepting that the problem exists and is on-going eases the friction many clients have in accepting that issues exist. It does not matter who caused a problem if they are not consistently contributing to the problem’s existence. Furthermore, how is pointing out a problem useful if one leaves solving it to those who created, perpetuated, or tolerated the problem in the past? No one is an expert in all aspects of running a business and should never present themselves as one or try to be, so this is an opportunity to involve your network which every advisor should grow to ensure every client has a comprehensive set of solutions.
- Prepare An Exit Plan To Minimize Liabilities
Data shows it is impossible for the business to recover, so what now? Some clients will be devastated, others angry. But if they do not have a plan going forward the entrepreneur will make up their own, drawing from the fallacies that got them into this mess, or worse ignoring the fact their business just cannot work. Having an exit plan brings comfort to a devastated client, especially if it demonstrates there is an open door to another business venture. Otherwise, be sure to have a strong referral relationship with a bankruptcy attorney or other necessary licensed professionals as local laws require.
No one is ever happy to hear they failed. Many clients will want to “shoot the messenger,” blaming their advisor for the business failing. But the worst reaction to learning a business is not viable is asking an advisor to fix it. One must decline this opportunity, not only ethically, but practically. If the business is truly not viable, no amount of consulting, promotion, technology, or any other solution will fix it so the only option is to close and try again later. Credit recovers and debts get discharged or paid, but money and more importantly time thrown into the black hole of a failing business will never be recovered. Preventing that will be the most valuable service one can give their clients.
About The Author
Trapezoid Business Services is solely owned and operated by Daniel Steyskal. Daniel has been a POS provider and business solutions consultant since 2008 working with small to midsized businesses and national franchises. When he's not making the impossible possible for his clients, Daniel enjoys cooking, gaming, and volunteering in his community. Find out more at www.tpzbusiness.com.