Any entrepreneur knows there’s a chance that their business may not take succeed. Risk is inherent in any new business venture, of course. The Small Business Administration says that, while about 80% of small businesses make it through their first year, only 50% of small businesses make it past the five-year mark. Only one in three celebrate their 10th anniversary.
While most small business owners lack the crystal ball clarity of knowing what their future will hold, there are some clear warning signs that the company is faltering and in danger of failing.
Warning Signs of Small Business Trouble
- A failing income statement.
Keeping an eye on the income statement is imperative no matter the age of the company. Red flags include a rising accounts receivables line or outright losses. If outstanding debt is high and you’re failing to collect on it, this could signal real trouble. - Low cash on hand.
Watching the balance sheet unbalance should make any CFO nervous. If cash on hand is shrinking or if you need to sell assets to make payroll, that’s a bad sign. Are sales down? Are your shelves filled with inventory that isn’t moving? If your business has a credit line, is it maxed out? Watch out for company bills not being paid quickly or increasing debt as a signal of trouble. - External market factors signal increased competition.
When a company feels competitive pressure, they must have the cash flow to shift tactics. If cash flow is a problem, a competitor could outbid or undercut on price, which could drive you right out of business. - Legal troubles.
Beware the corporate lawsuit. For companies struggling to stay afloat, a host of legal issues could arise such as vendors suing for nonpayment of bills, lenders pursuing property or equipment repossession, or even, failure to pay quarterly taxes. - Failure to make payroll.
If payroll checks bounce, there is a huge problem with the health of the company. One missed paycheck could have a long lasting impact on the employment relationship Once trust is lost, employee morale can decline in a self-perpetuating loop that customers will definitely notice. - Bookkeeping holes.
The health of a business can almost always be determined by the quality of the financial documentation. Clean books impact the company’s decisions about purchasing and growth. Without an accurate record, how can companies create a strategic plan for expansion? The simple answer is – they cannot.
While small companies can go through financial hills and valleys, these signs may signal that the business is in real trouble. If your company is struggling, talk to TSI about debt collection service that can improve the bottom line. We’ve been helping businesses of all sizes with their cash flow for nearly 50 years. Contact us to see how.
