This article was originally published in Columbus CEO. 

According to Harvard Business Review, 85-90% of companies that drop into a free fall will never pull out of it. Among the fortunate minority that do, about half will need to fundamentally redefine at least part of their core business in order to save themselves.

Those are certainly sobering statistics to consider for any business owner. The question is, how do you swerve around a free fall situation? Oftentimes, a rapid decline can hit your business suddenly, without warning, and from an angle you never previously suspected.

The NY Times stated that 7 of the top 10 reasons small businesses fail are due to a lack of financial leadership. Those shortfalls include:

• Unprofitable business model
• Poor financial management
• Lack of adequate cash reserves
• Operational mediocrity
• Wasteful/inefficient spending
• Undisciplined expansion
• Dysfunctional management

Let’s examine each of these challenges.

Unprofitable business model –
Do you know the fully loaded cost of each of your products/services? If not, how do you know you’re pricing each profitably? You could actually be losing money for each widget you produce! Meanwhile, you are feverishly selling those unprofitable products, thereby hastening your company’s demise.

Poor financial management –
If you are making decisions based on less-than-accurate or, worse yet, no numbers, you are essentially flying blind. Wait, your accounting firm that does your taxes will do that for you, right? Think again. They are focused on filing your taxes and that’s it! That naïve, head-in-the-sand thinking spells doom. This is precisely the job of a Chief Financial Officer (CFO). Do you have the experience and expertise to fill that role? Do you have the time to fill that role in addition to the myriad of other hats you already wear?

Lack of adequate cash reserves –
Do you know how much cash your business spends and, on the flip side, brings in the door each month? If sales suddenly dropped by 30% and/or a recession hits and customers take longer to pay you, would you still be able pay all of your bills and maintain payroll? If so, for how long? If you do not readily know the answers to these questions, you very well may have a cash flow problem. Or, do you? Without answers, you have no idea when your business could quickly fall into a tailspin. And, let’s face it – the economy is historically cyclical so, unfortunately, a downturn is inevitable. The question is, will you be prepared and able to weather the storm?

Operational mediocrity –
Does your company operate efficiently? Trick question – everyone thinks they do. We know not all businesses operate efficiently, but how do you know if yours does not? When is the last time you reviewed efficiency?

Wasteful/inefficient spending –
Are you paying too much for labor (including the ever-growing cost of medical benefits), raw materials, rent or utilities? Do you have any idea what you should be paying for those items? When is the last time you re-negotiated with key suppliers?

Undisciplined expansion –
How do you know when is the right time to expand? How much should you expand when you do? Keep in mind, “expansion” comes in many forms. It could be as simple as hiring incremental resources or expanding product offerings to being as complex as opening additional locations, building new production lines or acquiring a competitor.

Dysfunctional management –
Are you so bogged down in day-to-day details that there just are not enough hours in the day to regularly provide visionary leadership and impactful strategic planning? Do you have anyone on your team that is armed with substantial business experience and is not a “yes man” – i.e. would she/he push back on your ideas/decisions or, even better yet, suggest other possible business ideas?

At this point, you likely realize the importance of having the appropriate level of financial leadership at your company to help avoid a collapse. You might be saying, “O.K. – I get it now – a strong financial business partner would be invaluable with helping me clear these hurdles. Sounds great, but aren’t resources like that quite expensive?”

Unfortunately, yes, they are. A top notch CFO with 20+ years of experience in a mid-cost location, like Ohio, can easily make upwards of $300-400k in total compensation! However, an alternative solution to consider would be to bring on a CFO with the same credentials but hire them on a part-time basis. You still get their expertise and all of their experience but for a fraction of the cost.