Don’t ignore the signs that your business is struggling.
Losing a business is incredibly stressful, both for you and any employees who may lose their jobs. You have worked too long and too hard getting your business set up and putting your heart and soul into making it a success.
Equally, if you have a customer who owes you money, you may want to take more immediate action if it looks like they may be in distress.
So, how do you avoid getting into difficulties and spot the signs of business failure? And begin firefighting potential problems?
Here are several warning signs that a firm is struggling:
Problems with cash flow
They say that money isn’t everything, but poor cash flow is a problem in business and is often a clear indication that trouble is afoot.
You can identify cash flow issues with proper forecasting, highlighting the cash shortage problem areas or overspending.
Excessive debts
With interest rates creeping up after more than a decade of historically low rates, having too much debt may put your company at risk.
If you seek additional funding and lenders require stronger personal guarantees or security against a loan, take this as an indication that your own business is in trouble.
If your customers regularly pay late, this could indicate that they may struggle to manage their own money and have debt issues.
Defaulting on bills
We all have heard or used the phrase “you will get paid by the end of the month” to overcome short term money shortages.
However, if this is a regular occurrence, it might suggest that a business struggles to pay its way.
When it comes to your finances, defaults on tax payments, or other formal payment arrangements, can be particularly damaging and lead to penalties.
It could also negatively impact your reputation and your business if it becomes clear you are struggling to make payments efficiently.
Chasing payments
Many businesses are reluctant to chase payment as they do not want to damage customer relationships or reduce the prospect of future work.
However, regularly allowing late payments can affect your finances and prevent your suppliers from being paid.
Do you have issues with dealing with late payments? Seek professional advice to improve your credit control processes. If necessary, eliminate late-paying customers from your business.
Taking control over how you chase payments can help monitor future cash flow problems.
If you see sudden changes in your cash flow, you should investigate whether they are signs of something more serious.
Falling margins
Profit is key to the survival and growth of your business. Falling margins suggest costs are too high, and prices or income are too low, which is not a sustainable position for any company.
Cutting services or product lines, operational changes, redundancies, or a decrease in the quality of goods are all indications that a business is struggling.
Low morale
Reduced hours, contractual changes and pay freezes are all signs of business trouble. Although these indications may not mean the end of the business, they highlight money troubles.
Are you encountering signs that your business is in trouble? If you are concerned about your financial health, arrange a free credit control review or speak to our team for tailored advice.
