When you're running a business, the last thing that you would want to experience is insolvency. However, the business market is volatile at times, and experiencing hiccups along the way is inevitable. When that happens, you have to be extra vigilant and lookout for signs that can make financial setbacks even more serious.
Here are five telltale signs that your business is headed for financial doom:
1. Imbalanced Cash Flow
It's normal to experience dwindling cash flow from time to time, especially if you're a small business, and some of your customers fail to pay on your agreed date. If this is a continuous cycle and you find yourself strapped for funds for a prolonged period, however, you'll eventually be unable to pay for all the processes that your business needs to run. If you want to avoid this from happening, don't give in too much to customers demanding generous payment terms.
There's nothing wrong with refinancing if you do it occasionally. It's when you can't find a way out of it, however, then it can become a problem for you. Refinancing loans is like biting off more than what you can chew. Before you know it, your debt has piled up, making it even harder to manage. As a result, lenders will find your business less credible, and you'll find it harder to get a loan in the future. Refinancing only makes sense when you can get a better deal on interest rates. Otherwise, it's not worth the hassle.
3. Creditor Pressure
You know you're in financial trouble when you're behind on paying bills. Creditors will flag you for repeatedly paying late and may even start viewing your business as a risky borrower. This can be detrimental to your company should you find yourself needing funds from credit sources in the future. Know that you'll have a hard time securing a loan, and even if you do, you'll most likely get exorbitant interest rates.
4. Low Employee Morale
Are your best employees leaving? If so, that's a huge red flag that you should not overlook. Even if you're not entirely transparent about your financial situation, they may still sense that something is wrong because of occurrences, such as delayed salaries and lesser benefits. Those signs are enough to drive them to the edge, put a dent in their motivation, and prompt them to leave the company.
5. Financial Distress
Another sign that your business is headed into rough financial waters is when you've stopped taking a salary to prioritize paying your bills and your employees. Even if you're expecting a large payment to come in, it may not be sufficient to cover losses and offer immediate relief.
How To Recover
The first step to taking your business back on track is recognizing that you have a problem. The good news is that you can still rectify the situation once you've pinpointed what's wrong. When you start to take action, there's a better chance that you can recover.
If you find your business heading for financial troubles or want to have a better grasp on your business, our consultants are here to help. New Age Global Advisory provides finance, accounting and strategy services allowing you to understand and analyze your financials in real time.