Owning a business is one thing and knowing when your business is in financial trouble is another thing entirely. Business can be tricky at times. Some days, it might seem like all is well, and the next few days, everything goes south. One thing that many businesspersons struggle to recognize is the signs that the business is in financial trouble.
If you are a company director or businessperson who is concerned about the future of your business or company, then you must understand the signs of real business failure. These signs are subtle, and sometimes they are not glaring. But your ability to notice them early will help you manage whatever situation it is before it escalates.
No matter how big or little your business is, you need to understand these signs. There are rainy and sunny days in business. Therefore, you must equip yourself with the knowledge you need to scale through those periods. The only to solve an issue or problem is when you know the exact cause. In other words, if you are not aware of the root of your problem, it will be challenging to proffer a remedy.
As a businessperson, this article will help you recognize those basic signs that a business is up for some real trouble.
Signs that your business is in Financial Trouble
Absence of major clients
This sign is present in small and large businesses when there is financial trouble. As a business owner, you should know the average number of customers you get on a daily, weekly or monthly basis. All your customers have varying importance, and it is wise you pay attention to them. Some customers use your product or service in large quantities, and there are some who purchase little quantity.
The loss of an important client might not be felt for a month or two, but at some point, you will begin to loss revenue. Except you bring a new big client on board or the existing ones cover up for the loss, the absence of major clients can bite into your business. And that will abruptly affect your business’ financial health.
You are losing your best employees
Your employees have the power to build or collapse your business to an extent. You should pay close attention to your best employees. They also generate 90% of your business income. When you lose key employees, there are tendencies that your business will be in financial trouble. Reason being that these employees promote your business with their skills. And if they begin to leave, you will experience a huge financial setback in your business as this will affect your sales and income in general.
Sometimes, it is usually difficult to employ new persons with great skills. If you lose key workers in the space of one month, then it is a sign that your business is in for some financial trouble, except you have what it takes to employ and grow your staff circle. But the best away to avoid this is to pay attention to your employees. Be sensitive also to identify any cultural problem that makes their work environment unpleasant for them.
When you are unable to replace employees
Like we explained before, you cannot singlehandedly grow your business to the height you want it to be. Your inability to employ someone to replace outbound employees is a big sign that your business is in financial trouble. It is either you lack the funds to employ someone, or your work environment is not conducive. These two reasons are enough signs that your business is in financial trouble.
In addition to that, if you cannot find the budget for a replacement, then it is likely that between the time the employee joined and when they left, your input declined. Such declination means less revenue and opportunities for your business or organization. To avoid this, you must guarantee the productivity of your employees, make sure their input in the business is somewhat equivalent to their wages. By doing that, you are growing your business and also paying your workers well.
You are not paying your bills as at when due
Being in debt is one thing that causes business failure. Although there is absolutely nothing wrong in borrowing or taking a loan from the bank. But the issue lies when you are unable to pay back as at when due. If you are not paying your company’s bills on time, your business is in financial trouble. And this is because sooner than later, people or institutions you owe will come after you and that may be the end of your business.
Sometimes, the issue of late debt payment springs from inconsistent cash flow or poor management of funds. The moment it becomes difficult to pay your debts on time, that’s a warning flag as your business is heading for some trouble.• Your profit is not visibleThis should be the first sign to look out for to know if your business is in financial trouble. So many people run businesses but can’t boast of getting how much they put in return. After sorting your bill, paying your workers, can you boast of your own profit? If you as the owner of the business cannot profit from it, then there is financial trouble. Your business is not a charity organization hence, you must earn from it. The beauty of every business is when you can earn from it.
Your Customers Make Late Payments
If late payments from clients influence your cash flow cycle, it starts the chain reaction, which can eventually put an entire company on hold. Not getting paid on time, as a regular occurrence, also indicates sloppy collection policies. Of course one or two late payments isn’t necessarily problematic. But when this becomes a habitual part of your businesses situation, it is a warning sign there is financial trouble, and that something fundamental is not being addressed.
Banks deny you access to loans
In addition to not being able to pay your debts, financial institutions will pause the flow of capital. They deny you access to loans because they no longer trust you to pay back as at when due. This lack of trust is a big blow on your business or organization because the stigma will be hard to erase.
Lending is based on credit score algorithms and information from past lending history. If you don’t meet their required criteria, your chances of getting financial aid are slim. This denial will not only be embarrassing but will also put you in financial trouble. Note also that when banks deny you access to loans, it is a red flag because your financial status becomes questionable. And it takes a while to brace up if you will.
Management is always difficult
Companies that are always at crisis level don’t get the chance to focus on the company’s core USP’s. When a company slides towards insolvency, these kind of flash points become more common. Payments are coming in late, employees feel the tension, creditors are making demands to be paid.
For directors, the prevalence of continual crises is a big warning sign that foundational change is needed sooner rather than later. It is also a red flag to indicate that your business values aren’t aligning to its current state both financially and otherwise.
Poor Financial Management
Your inability to properly manage financial issues leads to financial trouble. Finance is like the bedrock of your business, and mismanagement can cost you a lot. Problems arise when you are unable to do your additions, multiplications, and subtractions properly.
Also, problems arise when you do not know or understand the financial state of your business. This issue is prevalent in small businesses, especially when business owners decide to be keeping the books themselves instead of hiring an accountant. You cannot do everything alone, the earlier you understand that, the better for you and your business.
A second pair of eyes is necessary to oversee your finances and records. Not having an accountant or financial advisor leads your business into financial trouble.
When your loss is higher than your profit
There should be a balance or meeting point between your losses and profits. The ideal thing for any business is substantial income, high gains and whatnot. But when the reverse is the case, then your business is in financial trouble.
Help for Businesses in Financial Trouble
Every problem has a solution and every business can rise again, even amidst financial trouble. But sometimes the stress of keeping a failing business afloat can be significantly more robust than accepting it is shutting down.
Frequently Asked Questions
How do you recover from a business failure?
Although recovery is relative, there are still some basic things required to recover from business failure. Significant business failure can be life changing, but is also an opportunity for reflection, regrouping and opportunity. Failure is above all a learning experience and a catalyst for change. It is not the end of the world.
Working through the causes and results with a business mentor can be a rewarding experience before you begin your next venture. Also, to recover from a business failure, pay attention to your mistakes and learn from them. Be sensitive to the signs listed above. Being sensitive will help you recover and identify issues early enough.
What happens if your business fails?
Like we said earlier, business failure is not the end of the world. And as much as your business is a source of income for you, it shouldn’t be the end of your life when it crashes. The fallout from business failure differs widely, depending on your level of debt, the significance of your assets, and the degree to which you are personally liable.
Above all, you need to seek advice from a licensed insolvency practitioner at the earliest opportunity to help you through what lies ahead. Having a financial advisor is also necessary as you can run to him/her for guidance when things aren’t going well with your business financially.
How can you help a business in trouble?
You may be a businessperson who wants to help a fellow business that is crashing. That’s a good ideal because no one has a monopoly of knowledge. However, you must understand that maintaining a business in financial trouble or any other form of trouble requires a clear, unemotional mind state.
You must focus on generating the best results for the company. Your actions may include restructuring, staff adjustments, acquiring finance, and conversing with customers. Ideally, this should be done by an experienced company rescue specialist.
What is the number one cause of business failure?
Anything can be responsible for business failure, from personal issues to societal constructs to financial trouble to many other things. But one of the number one causes of business failure is because the persons overseeing the affairs of the company don’t focus enough on the actual mechanics of growing the business. These are distinct from whatever service or trade the company is known for, but mean things like accurate accounting and cash forecasts.
Your business is your source of income. Therefore you must treat it with care. Don’t be careless towards the affairs of your business. Read, equip yourself with knowledge. Also, be sensitive and spontaneous when necessary. Do not leave your business in the hands of anybody as no one can treat your business like you. Seek advice when essential but make sure they align with your values. In addition to that, be ready for both dry and bountiful seasons.
Financial trouble is a big block on any business, most times you may not survive it, other times, you may but with bruises on your business. Nobody wants to be a victim. But with these signs, you can identify when things are going the wrong way and correct them immediately. For small business owners, your foundation determines you’re the future of your business. While you are still starting up, watch out for these signs, and avoid them as much as you can. It is better when you are not a victim because that may discourage you from pushing further in business.