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Five warning signs your business is in trouble

Be proactive to manage your business through difficult times.

On this page

  • Five warning signs to watch out for
  • Support to help you take steps to fix problem areas

Inability to pay your debts

If you have mounting debts and are juggling your cash and then it is time to look at ways to improve your cash flow and get back on track.

Some tips to help increase cash include:

  • prepare weekly cash flow forecasts to understand what has to be paid and when
  • sell old or excess stock
  • have solid procedures in place for collecting outstanding debts from customers – and stick to them!
  • talk to your bank about putting a temporary loan in place, such as an overdraft.

Poor Profitability

If your profit is reducing then your business could be on a slow downward spiral. You need to monitor profit and identify issues regularly.

Areas to consider include:

  • gross and net margins – check your stock prices and on costs and review expenses regularly to ensure that you are passing on any increases to your customers if possible
  • sales – do you have measures in place to retain and attract new customers and are they working?
  • if you are offering discounts, then your profit will be impacted. Look for alternative ways to offer extras to your customers such as after sales service or discounts  for volume based sales
  • review the productivity of your staff and your rosters. If you have staff that are sitting idle then this will impact profit. Make sure all staff are fully employed during their rosters.

No access to finance

If you don’t have access to finance when you need it, this could be the start of the end. Having a finance facility in place that is available when things get tight is a favourable contingency plan. So you should look at:

  • obtaining a finance facility when the business is showing good profit and cash flow
  • develop a good relationship with your bank and keep them informed on how the business is going, so that if you need to approach them for finance they will be well informed on your business operations which may assist in obtaining finance
  • extending supplier terms – these are effectively an interest free loan
  • monitoring cash flow through forecasts so you can identify possible cash flow shortages before they happen and take action to rectify this before it happens

Continually replacing staff

Replacing staff has a high cost including time spent to train new staff. Way to reduce staff turnover include:

  • have a recruitment plan in place that outlines the attributes that your staff need to meet, such as any qualifications, flexible to working hours, team player etc. and spend extra time at this point to ensure that you employ the right staff
  • be an employer of choice – provide great support and training to your staff and the word will get around
  • involve staff in managing the business – you will get more commitment when your staff have had a say
  • ensure that the culture within the business provides the rewards staff are looking for.

Inadequate financial records

Financial records are the backbone to the business and it is critical that you keep them up to date and monitor regularly so your business can be the best it can be. You should ensure that all your invoices and payments are entered weekly into your financial system and review your profit and loss statement monthly.

Cash flow forecast will help you monitor the cash position of your business and this should be prepared at least monthly. However, weekly will show you each week what payments need to be made and where the money is coming from.

Here are some suggestions on how to make this easier:

  • make sure you have a good filing system in place that makes it easy to find invoices, bank statements and all the information you need to keep your financial records up to date
  • set aside time each week to update the financial records and review them – perhaps on the quiet trading day so you won’t become distracted
  • ask your bookkeeper or accountant what are the key financial areas you should be reviewing regularly
  • update your financial management training – there are a number of seminars that you can attend to help you understand your numbers more.