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Negative statistic due to crisis

By Piers Ede

There’s often a very thin line between a company that is failing and one that is simply experiencing a temporary cash-flow shortage or a seasonal decline in sales.

Businesses do not fail overnight. Instead, in many cases, there is a gradual and almost imperceptible decline that business owners might miss, particularly when they’re unaware what some of the symptoms of a failing business might be.

In this article, we will identify some of the common signs that your business could be failing. If you recognize one or two of these signs in your own business, then you could be experiencing a temporary glitch or more serious issues that are only just emerging. However, if you recognize more than a couple of the warning signs, then you should seek professional advice immediately.

1. You’re unable to pay bills on time

Every business has payments that must be made, whether it’s to landlords, employees, utility companies, suppliers, or financing providers like the banks. Although it is not unusual to struggle to make the occasional payment, particularly for smaller businesses, if you are regularly receiving payment requests from creditors in the form of threatening letters, phone calls, and emails then it could be symptomatic of a serious cash-flow problem. Ignoring this type of contact from a creditor can lead to more serious action being taken, which could be the beginning of the end for your business if you can’t afford to pay.

2. You’re regularly on the receiving end of late payments

Late payments from customers are one of the primary reasons businesses are unable to pay their own creditors on time. If you offer unnecessary long payment terms or do not have an established collection procedure in place, you could experience a cash shortfall that impacts your business’s ability to operate effectively.

3. There’s a high employee turnover rate

Staff turnover is an unavoidable part of running a business. Even the most successful companies lose employees all the time. However, if your employee turnover rate is particularly high, then it’s a sure sign all is not well in your business. Poor staff morale can be caused by a number of factors such as low pay, substandard working conditions, or ineffective management. The result is low levels of productivity and high costs associated with recruitment and training.

4. You have reached your borrowing limits

If you have reached your borrowing limits on things like bank overdrafts or business credit cards, and have been refused further financing, you need to ask yourself why. Rather than trying to acquire additional funding, you should reassess your cash situation and take a long hard look at whether your company is in decline.

5. You’re not taking a salary from the business

If you’re struggling to pay your employees and you have not taken a salary from the business for a few months, then that could be a sign the business is failing. Even if you’re waiting for a big payment to come in, it may not be enough to correct the situation over the long-term.

6. You’ve diversified away from the business’s core

Businesses often diversify their products and services to grow, but moving too far away from your core business will often increase your costs, open you up to new competition, and cause you to lose the competitive advantage you worked so hard to build. An overly diverse portfolio can be a sign of a struggling business that is desperately seeking new sources of revenue.

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7. You’re constantly fighting fires

If your working day is spent moving from one problem to the next rather than focusing on the big picture of running your business, then there could be some serious issues at play. It’s very easy to get caught up in micromanagement, but being so bogged down with the day-to-day running of your company can mean you’re failing to identify and tackle the root cause of a problem.

8. There’s a lack of management information

It’s very difficult to make important decisions about the future of your company, or pinpoint particular problems without accurate and timely management and accounting information. This severely limits your understanding of situations that may arise, and reduces your ability to deal with them effectively. Cash-flow forecasts, sales forecasts, and aged debtors reports are just a few examples of the information you should be able to access.

9. You’re holding too much inventory

Your business might be functioning perfectly at the moment, but if you’re holding too much inventory, then trouble could be just around the corner. Investing too much capital in products could leave you without the cash you need to pay creditors, and make you vulnerable to losses if inventory lingers on the shelves.

10. You feel like you’re the only decision maker

If you’re the only member of senior management that’s making decisions and pulling other people’s weight, then it could signify the start of a downward spiral. If relationships have broken down with other managers, then it becomes extremely difficult to run a business effectively.

If you recognize a number of these warning signs in your own business, it’s essential you act quickly. If your business is viable, with the right help, these issues can be resolved. But, the longer you wait, the fewer options you will have, and the greater the impact will be.

RELATED: Beating the Odds: Finding Startup Success When 90% of New Businesses Fail

About the Author

Post by: Piers Ede

Piers Ede is a former journalist and currently a member of the team at Company Debt, helping stressed directors with insolvency and company rescue issues.

Company: Company Debt
Connect with me on Facebook, Twitter, LinkedIn, and Google+.

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