The 5 Warning Signs That Your Business Is in Trouble

The 5 Warning Signs That Your Business Is in Trouble

Reading Time: 4 minutes(Last Updated On: December 18, 2019)

Has your business lost its mojo?

Just like every normal relationship has its good days and its bad days, businesses are the very same. Every business goes through its ups and downs, the problem arises when the ‘downs’ don’t seem to be budge.

Here we’ll take you through the tale-tale signs a business is in trouble and more importantly, how to stop the downward spiral in its tracks.

Businesses come and go

According to the Small Business Association (SBA), 30% of new businesses fail during the very first two years, and if you fast forward to the 5-year mark that percentage increases to a whopping 50%! If you can spot the warning signs your company is in trouble, you may just be able to save it before it’s too late.

So what are the common signs a business is in trouble? You’re about to find out. Moreover, if you recognize any of these signs in your business, it could be just a temporary setback or it could indicate a more serious issue beginning to show its nasty head – better to nip it in the bud than to sit back and let it fester.

1. Cash shortfall

One of the undeniable signs a company is in trouble is dwindling cash flow. Seeing as cash flow is the number one reason that most businesses fail – if your company is in a cash crunch, it’s time to re-evaluate. The ability to generate a consistent and hopefully, increasing cash flow is essential to business success. A negative cash flow (unless you have a seasonal business where fluctuations are the norm), is a clear indicator that a business is experiencing financial difficulty.

Pro tip: Take a look at your company’s balance sheet regularly and make comparisons between the current cash holdings, versus what they were this time last year to get a clear indication of the facts. On top of that, there are plenty of tried and tested ways to manage cash flow and maintain a healthy business.

You’d be surprised how often a company doesn’t actually know whether it’s making or losing money! With so many expenses flying out the door, having a professional accountant that keeps meticulous records is key in preventing any nasty surprises down the road. If cash flow is one of the main issues due to delays in payment it may be best to apply for a small business loan and look into invoice factoring to account for those late payments.

2. The best employees are leaving

One of THE biggest warning signs your company is in trouble is when your employees are running for the hills.

Unmotivated employees or worse, depressed employees are a sure indicator of struggling businesses. If employees are unhappy in the workplace this could be a sign of one of two things (or both):

    1. It may indicate an inability to pay talent at the market rate
    2. It could mean that higher management is unable to uphold an attractive and fun work environment

With the drive and fun being sucked out of a company, employees will surely begin to despise being at work, which is never fun. The best employees leaving, therefore, is a sure sign that the company is in trouble.

3. Market share losses

A report by the Society of Practitioners of Insolvency in the UK found that loss of market share accounted for around half of all company failures in a study involving 1,900 companies that went bust, meaning that market share, is key to profitability.

Losing market share can often indicate an inability to compete in the marketplace and is a sure warning sign a company is in trouble indicating that future financial pressures are around the corner.

4. Customer retention is falling

If you are losing customers by the day, and especially if you are losing more customers than you are gaining, then it is only a matter of time before you see a drastic drop in revenue. This is a sure warning sign your company is in trouble.

A fall in customer retention could be due to a number of factors including;

    • Failing to meet customer expectations
    • Customers are finding better deals elsewhere
    • Poor customer service

    • Your product or service is no longer relevant

Pro tip: be sure to keep a close eye on and track your customer retention. If you notice a continual drop, go back to basics and treat customers with respect. It would be easy if a fancy new marketing campaign or customer loyalty card could solve everything, but it can’t in the long term. Try to figure out why it all started going south. Are your prices too high? Perhaps too low? Is your product/service adding value to the market? If you can pinpoint the cause you may be able to turn it all around.

5. You’ve got too much inventory

This one may sound a little odd but even if it seems that your business is functioning perfectly at the moment, if you’re holding too much inventory, it could be one of the signs a business is in trouble. By investing too much of your capital in products, you could be left without the cash you need to pay creditors, leaving you, the business owner, vulnerable to losses if inventory were left collecting dust on the shelves.

How to get your business back on track

If your business is exhibiting one of these warning signs, your company is in trouble – or at least, heading that way.

If after reading this, you recognize one or more of these distress signals, don’t worry too much, there is help for businesses in financial trouble out there. The first thing you need to do is act quickly. There’s no sweeping this one under the rug! The longer you wait, the fewer options you’ll have.

Get your business back on track:

    1. Get organized – use a good filing system to make it easy to find all invoices and financial information to keep your records up-to-date.
    2. Review your financial records every single week without fail so that you are always aware of any dips in data – if you don’t understand the numbers, hire someone who does!
    3. Sell old or excess stock

Avoid bankruptcy and try getting a temporary loan in placeBecome can help you to find the best company for the job. With over 50 lending partners, you’ll be matched with funding solutions and debt consolidation options to match your needs.

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Disclaimer: The information contained in this article is provided for informational purposes only, should not be construed as legal advice on any subject matter and should not be relied upon as such. The author accepts no responsibility for any consequences whatsoever arising from the use of such information.