Does experiencing cash flow issues and seasonal sales declines mean your company is on the brink of collapse? Unfortunately, failure to act on these problems can indeed lead to your company’s eventual liquidation and dissolution. Hence, don’t take any minor glitches lightly as they could eventually escalate. Instead, nip them in the bud before it’s too late. Recognize the top 10 red flags that indicate your business is failing.
1. Inability to Pay Bills on Their Due Date
When your cash flow becomes problematic, and you cannot pay bills on time, you need to seriously assess your company’s financial health. Although an occasional issue during lean months is understandable, a chronic problem is a major red flag that something is not right with your operations. If you regularly receive threats from your creditors, you are in deep trouble because you clearly don’t have funds coming in to pay for your obligations. What’s worse is you become in deeper trouble because of overdue and late payment penalties.
2. Clients Also Give Late Payments
If your business also receives late payments, this could snowball into a bigger problem because you will also have trouble paying your loans or your suppliers on time. If most of your clients pay late, it indicates you have improper collection policies, or you’ve marketed to the wrong people. A late payment or two is fine, but consistent, habitual delays show your business has a fundamental problem that needs to be addressed because it impacts your operations.
3. Employee Turnover is High
Employees come and go; that’s a fact. Reasonable staff turnover is normal. However, if your business loses staff all the time, this is a clear indicator that you’re not doing well. It shows that employee morale is low due to low pay, late pay, substandard working environment, or poor management. Sadly, this affects your company’s productivity and profitability. Moreover, it is expensive to hire and train new staff.
4. No One is Willing to Let You Borrow
If banks and other financial institutions begin to refuse you, you have reached your borrowing limit. When creditors stop the flow of capital and don’t provide additional financing, your company is considered high risk. They’ve lost faith in your ability to pay your debts. Thus, assess your cash flow if you don’t want your company to continue with its rapid decline.
5. Inability to Take a Salary
If all your profits go to paying expenses and you cannot afford to take your own salary, this is a major red flag. Skipping a month when sales are low is fine. However, the inability to take a salary from your own business for several months is a clear indicator that your business is not earning enough. Correct the situation before you burnout and see negative cash flow.
6. Over Diversification
Diversifying is good, but growing too rapidly away from your core can lead to bigger issues. When you feel to begin the pressure and start losing clients, you must reevaluate your expansion plans. If your costs increase and you lose our edge, your company can end up struggling to stay afloat. As such, don’t bite more than you can chew, or you will end up losing that competitive edge you’ve built over time.
7. Losing Major Clients
Losing contracts indicate that your biggest clients no longer trust you. Apart from that, you lose the income they give. When key customers leave, you put your enterprise at risk, which can affect many aspects of your operations. Thus, you must take care of these clients and offer support.
8. Management Constantly Fights Issues
When your company is headed for insolvency, issues become more prevalent, from creditors hounding you to employee tension. The presence of never-ending crises is a major red flag that shows you need to make foundational changes. When the day-to-day tasks of running your company become burdensome, it shows that there are deep problems that you must identify.
9. Lack of Access to Accurate Information
You need accounting information to make timely management decisions. Access to accurate bookkeeping data is crucial so you can handle situations from excess inventory to managing loan payments. If you and your managers don’t have access to these key statements, you reduce your capacity to make sound decisions. And when issues crop up, you cannot deal with them effectively.
10. Broken Relationships with No Trust
If you feel like you and your team no longer acts one, then your company could be headed towards a downward spiral. When relationships are broken, trust is dead. Hence, your people can no longer collaborate well, making it difficult to run your business.
Final Wrap Up
Remember, you can turn many of these red flags around if you act on them promptly. Any delay will bring you one step closer to business dissolution and permanent closure. If you are serious about reversing your current company situation, give our team a call. We give FREE 30-minute consultations to help you evaluate issues that could be adversely affecting your company’s bottom line.