Business troubles don’t often come out of nowhere. There are always warning signs that may indicate a business is heading towards financial distress. Business owners should be aware of the warning signs, so they can take action before it is too late.
Reduced cash flow and profitability
If your cash flow is often causing you problems and you are always in need of more cash, your business is likely under financial strain.
Signs of reduced cash flow include:
- Customers payments are regularly late.
- You’re struggling to pay your suppliers and wages.
- Asking the ATO for payment arrangements.
Changes in customer behaviour
A fall in demand for your goods or services, or a perceived decrease in the quality of your goods or services, can have a major impact on consumers. Changes in customer behaviour might include:
- A decrease in sales.
- Loss of major customers.
- More complaints or refund requests.
If you have noticed these changes, you may want to seek feedback from your customers.
You’re not able to pay debts and bills
If you are struggling to keep up with your bills or pay them on time, it could be a sign of financial trouble. Missing payments may indicate that your business does not have sufficient funding to continue day-to-day operations.
If your debts are mounting, you will need to look for ways to improve your cash flow. Consider:
- Preparing a weekly/fortnightly/monthly cash flow forecast to understand exactly what you need to pay and when.
- Selling old or excess stock and inventory.
- Collecting outstanding debts owed to you.
It is important to take action against these warning signs as soon as you see them. Neglecting to handle them will likely result in worsening conditions for your business.
To get back on track consider reviewing your budget is a good place to start. If you need assistance with developing plans to improve your business, you may wish to consider our CFO Program and Business Improvement Plan.