5 Signs Your Business is in Financial Trouble

Business can be a funny beast at times. It might seem like everything is going swimmingly one month, only for the doors to come down the next.

One thing that many business owners struggle to recognise is the signs that their business is under stress until it’s too late, but often a business can be saved if the warning signs are flagged early.

So, what are the most common warning flags that businesses face? It’s often surprising, but signs that a business might be under financial duress can often be found outside of the financial books.

Signs your business is in financial trouble

1. Major clients have left the organisation

The typical business will have multiple clients or customers, and those clients will be of varying importance. This can often leave an odd sense of security about the soundness of the revenue coming in, even if one of the major clients has left the business. After all, even if there’s one fewer contract, revenue is still coming in, staff are still busy, and work’s getting turned over.

The loss of an important client might not be felt for a month, two, or even longer, but at some point, unless you’re able to bring onboard a new top-tier client, or upsell an existing one, there will be a point that the lost revenue will bite into the business’ financial health.

Be careful, as well, in bringing on a new client – it means revenue is coming, but there’s still going to be a period of time from when the contract is signed until the revenue from that client starts to boost your business’ cash flow.

2. You’re losing your best performers

As a rule, companies don’t like churn at any time because an employee that moves on means you’ve lost skills and talent that you’ve invested in, and your company structure stability is affected. However, you should be paying especially close attention to the movements of your best performers.

Losing a top salesperson will have a bigger impact on revenue than losing a junior member of the team. Losing a favourite support contact for a large number of clients might well result in you losing some – if not all – of those clients.

You will, of course, have a transition process so that an outbound staff member will “handover” their work, projects, and contact information to their successor. They’ll also cover introductions, but nonetheless, no matter how well you plan the transition, instability can have a significant impact on short term revenue. You’re much better off identifying if there’s a cultural problem that’s causing staff to leave, and to address that as a way of protecting your business revenue.

3. You’re not able to replace outbound employees

If someone does leave the organisation, and you look at their workload and say to yourself “I can’t justify bringing someone new on to handle this,” or you simply can’t find the budget for a replacement, then it’s likely that between the time in which the employee joined your organisation, and when they left, their workloads declined, meaning less revenue and opportunities for your organisation.

Sometimes departments become redundant, and sometimes job losses are inevitable to the company, but under-productivity in business units that you are keeping is a sign that your business might not be run efficiently enough, which can have knock-on effects to profitability.

4. You’re not paying your bills on time

This one might sound obvious, but it’s amazing how many business owners don’t see this as a huge priority. If you’re not paying your company’s bills on time, then there’s something wrong with the financial position of the company.

The challenge is in understanding what is going wrong. Often it will be an issue of cash flow – i.e. you’re got more expenses that cash on hand.

There are plenty of other things that might affect cash flow, however. Inventory is a common one for organisations that sell products. Credit policies are another, if for whatever reason repayments are not made on time.

If your cash flow is not managed properly, and you end up relying on the stars aligning so that you can pay your own bills, it should be a big warning flag that your company is skating on thin ice.

5. You’re no longer communicating financial results to your staff

Precisely because you don’t want to lose your best people, you’re going to want to project positive messages to your staff about the performance of the company and its future prospects. One thing that you’ll never be able to conceal, however, is if the financial position is dire. Employees are comfortable with the standard up and downs of business performance, but if there’s a one-way direction in revenue and profitability over a period of time, then they’re likely to start spending their lunch breaks updating their LinkedIn profiles.

Use those company-wide update meetings as a litmus test for the performance of the company. If the subtle shifts have turned negative over a longer period of time, then use that as an encouragement to look much more closely at the books.

Rarely will the warning signs that a company is in trouble be projected clearly. Instead, there will be challenges in the day-to-day management of the company that point to a greater problem. If you’re starting to feel like your business is in some kind of financial distress, contacting the team at Mackay Goodwin via phone on 1300 750 500 or online is a good first step in driving a turnaround strategy for saving the company.