If you’re a company director feeling a twinge of concern over your company’s future, it pays to understand the key warning signs of real business failure.
Here at Company Debt we specialise in helping businesses who have reached, or are nearing reaching a critical juncture. Many can be turned around if the signs are acted upon promptly enough, others will end up in liquidation and eventual dissolution.
Read on as we explore the key warning signs of impending business failure, and what you can do about them.
- 7 Warning Signs of a Business in Financial Trouble
- (1) Can’t Pay Bills on Time
- (2) Your Own Customers Make Late Payments
- (3) The Banks Won’t Let You Borrow More Money
- (4) Directors aren’t Taking Salaries from the Company
- (5) Management is always firefighting
- (6) Poor Financial Management
- (7) You’re Losing Important Company Clients
- If you Fear the Warning Signs Mean Insolvency?
7 Warning Signs of a Business in Financial Trouble
Here are the warning signs to look out for:
(1) Can’t Pay Bills on Time
This may be obvious but it’s important. When the cash flow cycle slows enough that you’re unable to pay bills when they’re due, it’s time for a serious look at the entire organisation’s health.
Along with not paying bills come an inevitable slew of issues such as angry letters from creditors, and penalties for late payment of tax.
(2) Your Own Customers Make Late Payments
If your own cash flow cycle is impacted by late payments from clients, it starts the chain reaction which can eventually halt an entire company.
Not getting paid on time, as a regular occurrence, also indicates sloppy collection policies and a general haphazardness which may infer the business needs a tighter focus.
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 that something fundamental is not being addressed.
(3) The Banks Won’t Let You Borrow More Money
When financial institutions halt the flow of capital, it means they no longer have faith they are going to get it back. Since lending is based on sophisticated credit score algorithms, and information about past lending history, the bank’s judgement is often fairly astute.
The second issue is that an inability to gain more finance places yet more strain on the company cash-flow cycle, and ultimately limits growth.
(4) Directors aren’t Taking Salaries from the Company
When company directors, or other staff members, aren’t taking salaries, it means the company is, at least temporarily, not a viable one. For any business to have a chance of survival it must generate enough capital to pay key staff.
(5) Management is always firefighting
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.
(6) Poor Financial Management
Just as the captain of a ship should have a detailed knowledge of forthcoming weather systems, limited company directors should also know how much working capital is available, what are the financial buffers in place, and how much is owed.
One classic indication of a company heading for financial trouble is where these facts are not known or understood. It is common in smaller businesses, especially, where directors may be keeping the books themselves to avoid paying an accountant.
This is also the reason that every business should have someone helping out with the finances, because a second pair of eyes can be invaluable to forsee problems early on.
(7) You’re Losing Important Company Clients
Important contracts aren’t just the guarantee of regular income, they’re an indication of the presence of trust and mutually beneficial business relationships: critical factors to the success of any enterprise.
When key clients start leaving, a landslide often begins at the same time. As a company director, you can never lose your focus in looking after those clients that support you in return for whatever service you’re offering.
If you Fear the Warning Signs Mean Insolvency?
Putting your head in the sand isn’t an option. If these warning signs are ringing true, it’s time for decisive action if you’re business is going to have any chance of surviving what’s to come.
As insolvency practitioners and company turnaround experts, our role is to help businesses survive financial difficulty where possible. Our role is to offer the best solutions possible based on the situation at hand. Use the live chat for instant advice or call us now on 0800 074 6757