5 Financial Warning Signs that a Business is in Trouble
Realizing that a business is in financial disaster is a nightmare for every business owner. Nothing is worse than waking up one day and realizing that your business has run out of money or, even more disastrous, that you are in deep debt.
Every business runs into problems, but when finances start to get out of control and you’re unable to settle financial obligations, you need to act immediately. Never put these matters on hold.
Like any illness, it is vital to identify the warning signs before it’s too late. Catch the symptoms early on so you can save your business from a full-scale meltdown.
Here are some indicators that your business could be heading into serious financial disaster.
Rising debt to equity ratio
There are some instances where a business has to purchase some merchandise on credit or take out a loan from a bank for business growth. But mounting debt is a major red flag that indicates future problems. If this increases over time, then it’s a sign that the business is facing high financial risk.
If cash flow is so tight that you cannot continue operations or pay your suppliers, then consider this as potential trouble. Debt can overburden your business, draining your profitability and cash flow.
Unpredictable or declining sales
Keep an eye on your sales growth. Has it become erratic, irregular, stagnant or declining? This only means one thing: your cash flows are unpredictable. When this happens, paying off expenses and financing all disbursements can become more difficult. It may result in more bank loans to fund your working capital and sustain your daily operating expenses.
Low cash collection
In business, fluctuations are normal, but it is critical to manage low cash flow seasons. If cash flow continues to remain slow and the situation isn’t improving for some time, watch out.
Your key to business growth and success depends on your ability to generate cash. Without strong and positive cash flow, it is difficult for a business to survive.
Be aware that failing to pay suppliers, employees or the bank can even lead to business closure—and this is something that you do not want to happen.
High employee turnover
Changes in key personnel and poor employee retention can indicate that your business is struggling. People are already losing their belief in the business and they can sense the trouble. Your employees lack motivation to work as some benefits or bonuses have been cut-off. Without the right people running your business, the productivity and performance of employees are affected. Eventually, your business will suffer even more.
Slow inventory turnover
Moving products from your shelf is taking too long. This can be because your product is decreasing in quality. It can also be that your service is lacking or isn’t kept up to date. Holding inventory too long signifies potential liquidity problems. This slow movement can mean that your sales growth is weakening.
There are other red flags that indicate financial trouble in a business that need to be addressed promptly. If your business is experiencing these symptoms, don’t lose hope. Explore all options that can help your recover and save your business. It would be useful to seek help from a professional specialist or consultant who can work with you to achieve a successful business turnaround.
Need to learn other ways to help you get out of financial trouble?
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