1. Cash shortfall
One of the undeniable signs a company is in trouble is dwindling cash flow. Seeing as cash flow is the number one reason that most businesses fail – if your company is in a cash crunch, it’s time to re-evaluate. The ability to generate a consistent and hopefully, increasing cash flow is essential to business success. A negative cash flow (unless you have a seasonal business where fluctuations are the norm), is a clear indicator that a business is experiencing financial difficulty.
Pro tip: Take a look at your company’s balance sheet regularly and make comparisons between the current cash holdings, versus what they were this time last year to get a clear indication of the facts. On top of that, there are plenty of tried and tested ways to manage cash flow and maintain a healthy business.
You’d be surprised how often a company doesn’t actually know whether it’s making or losing money! With so many expenses flying out the door, having a professional accountant that keeps meticulous records is key in preventing any nasty surprises down the road. If cash flow is one of the main issues due to delays in payment it may be best to apply for a small business loan and look into invoice factoring to account for those late payments.
2. The best employees are leaving
One of THE biggest warning signs your company is in trouble is when your employees are running for the hills.
Unmotivated employees or worse, depressed employees are a sure indicator of struggling businesses. If employees are unhappy in the workplace this could be a sign of one of two things (or both):
- It may indicate an inability to pay talent at the market rate
- It could mean that higher management is unable to uphold an attractive and fun work environment
With the drive and fun being sucked out of a company, employees will surely begin to despise being at work, which is never fun. The best employees leaving, therefore, is a sure sign that the company is in trouble.
3. Market share losses
A report by the Society of Practitioners of Insolvency in the UK found that loss of market share accounted for around half of all company failures in a study involving 1,900 companies that went bust, meaning that market share, is key to profitability.
Losing market share can often indicate an inability to compete in the marketplace and is a sure warning sign a company is in trouble indicating that future financial pressures are around the corner.
4. Customer retention is falling
If you are losing customers by the day, and especially if you are losing more customers than you are gaining, then it is only a matter of time before you see a drastic drop in revenue. This is a sure warning sign your company is in trouble.
A fall in customer retention could be due to a number of factors including;
- Failing to meet customer expectations
- Customers are finding better deals elsewhere
- Poor customer service
- Your product or service is no longer relevant
Pro tip: be sure to keep a close eye on and track your customer retention. If you notice a continual drop, go back to basics and treat customers with respect. It would be easy if a fancy new marketing campaign or customer loyalty card could solve everything, but it can’t in the long term. Try to figure out why it all started going south. Are your prices too high? Perhaps too low? Is your product/service adding value to the market? If you can pinpoint the cause you may be able to turn it all around.
5. You’ve got too much inventory
This one may sound a little odd but even if it seems that your business is functioning perfectly at the moment, if you’re holding too much inventory, it could be one of the signs a business is in trouble. By investing too much of your capital in products, you could be left without the cash you need to pay creditors, leaving you, the business owner, vulnerable to losses if inventory were left collecting dust on the shelves.