16 Signs Your Business Is in Trouble and What to Do About It
One issue about starting a business is that it comes with a risk of failure. You aren’t always guaranteed success. While your entity has a good chance of growing to become a successful one that hires thousands of employees, it may also not make it to these glory days.
This is why it’s advisable to keep an eye on how your business is performing. In the same way, you’d notice the good things happening in your entity, also take note of any warning signs that show it is heading to trouble.
Warning Signs Your Business Is in Trouble
Looking out for red flags puts you in a better position to steer clear of failure. It enables you to review your operations and resolve any issues that put your business at risk. It may also prepare you to brace for impact if the red flag is something out of your control.
If you want to prevent a troubled business, have a look at these 16 warning signs.
1. High Employee Turnover
A high employee turnover rate means that employees leave your business as quickly as they join it. It means that you are losing talent, which should be a cause for alarm. A high turnover often occurs due to bad management, a toxic work environment, and poor recruitment processes.
Every business has an employee turnover rate. However, if you find that yours is high, you may want to evaluate what’s causing your staff members to leave so quickly or abruptly.
Take steps to improve the welfare and well-being of your employees so that you retain them. This way, you won’t have to incur extra costs and waste valuable time hiring, interviewing, and training new employees.
2. Top Management Defections
Another warning sign that shows your business may be in trouble is when you start losing top management. Your top managers are the ones that give the business direction and purpose. They are the ones that establish policies and strategies to drive growth and achieve the entity’s goals.
The leaving of senior executives may cause panic across every department. It may cause middle management and other employees to want to jump ship as well since they can smell something is wrong.
Staff members that choose to remain will also not be at ease as they know that the new executives that join the entity will come with their own policies and leadership styles. It might be a while before staff embrace and trust the new top managers.
3. Inability to Pay Most of Your Expenses
Being unable to meet expenses is a classic sign that your business is struggling. It shows that your cash flow is poor and that your business is not making enough revenue. It’s only a matter of time before your relationships with suppliers fracture. In the end, they will stop dealing with you.
If you can’t pay expenses, review your spending to see where you can cut costs or renegotiate terms with suppliers. Also, keep a keen eye on your cash flow to ensure you always have money to cover expenses.
4. Inability to Make Payroll
Being unable to make payroll is never a good sign for any business. It may leave employees frustrated and demotivated, especially those who live paycheck to paycheck.
Having no money to pay employees or not paying them on time may also cause you to start losing talent. Employees will sense that your business is struggling, thus leading them to search for better opportunities.
5. Interest Payments Are Higher Than Profits
High loan interest payments mean fewer profits for your business. Additionally, if the interest payments are higher than your profit, you may start to operate at a loss. Your business may stagnate since you won’t have disposable income to fund growth and operations. You might end up stuck in a vicious cycle of making money to cover your debt. Before you take a loan, ensure the interest rate is not too high that it affects your profitability.
6. Poor Cash Flow
Businesses have poor or negative cash flow when the cash leaving the entity is more than what’s coming in. Poor cash flow often results in an entity being unable to pay its debts and expenses, let alone fund operations.
Having poor cash flow threatens your business’s existence. It may cause a halt in operations and affect your ability to pay employees and cover expenses. This is why keeping an eye on your cash flow is crucial.
7. Poor Profits
Poor profits are, in most cases, a result of low sales revenue as well as high costs and expenses. They are a sign of an unhealthy business.
Profits drive growth in a business, and thus you need to ensure they are at a healthy level. Your profit margin doesn’t have to be too high, but it should not be too low that it limits your ability to fund growth and new opportunities.
8. Inability to Obtain Funding
If your business is not making any revenue, you may need to rely on external funding to finance operations. What if you are unable to acquire funds? In this case, your business will suffer since you won’t be able to fund operations.
A lack of capital is one of the most common reasons businesses fail. Therefore, being unable to secure financing is a cause for alarm.
9. Changes in the Marketplace
A change in the marketplace can also affect your business negatively. For example, the emergence of a new technology may reduce the demand for your product or service.
It is important to be on the lookout for possible changes in the market. Be ready and willing to adapt to avoid being left behind.
10. Changes in Customer Behavior
Customer behaviors change over time. Your business could be doing well one year, and then something happens that makes them prefer another product or service over yours. New technological innovations are what, in most cases, drive change in customer behaviors.
A change in customer behavior can lead to low sales and profitability. Eventually, it may result in the demise of your business if you don’t do anything about it. You must study your target customers. Learn their hobbies, interests, and preferences. Always strive to meet their expectations.
11. Not Keeping Up With Compliance Obligations
Businesses are exposed to many compliance obligations such as business registration, employee-related issues, and health and safety rules and guidelines. Violating any of them may lead to hefty fines and penalties. It might also result in the closure of your business, or worse, criminal charges. Strive to ensure your business is legally compliant to avoid any compliance disputes.
12. The Competition Is Taking Over Your Share of the Market
Competition impacts business in both a positive and negative way. It helps keep you on your toes to produce better products and offer exceptional customer service. In the meantime, it causes a decline in your total market share.
If you notice that your competition is taking over your market share, don’t sit comfortably and allow them to do so. Having a reduced market share will mean that you have fewer customers and thus lower sales. Strive to find ways to beat your competition by improving your products and providing excellent customer service.
13. High Customer Complaints
Customer complaints are a part of business, but they shouldn’t be too high. If too many customers complain about your business, there may be a problem with your products or customer service. Go back to the drawing board to assess why clients are complaining. Ignoring the complaints may cause them to never return to your business, which will lead to a reduction in sales revenue.
14. Bad Reviews
Bad reviews can harm your ability to make sales. They may hurt your business’ reputation and negatively affect your revenue and profitability.
If you notice customers are writing bad reviews about your product or service, deal with the reviews by addressing and resolving the concern. Ignoring the bad review and hoping customers don’t notice it is never a good idea.
15. Legal Problems
Getting caught up in a legal dispute can negatively affect your business. Legal issues often take time and money to settle. They may deviate your focus from your entity and thus hurt operations. This situation might worsen if the legal dispute is a public one. It might harm your entity’s reputation. You must protect your entity from any legal problems before they cause trouble.
16. Your Business Is Subject to Fraud
Fraud in business can happen in many ways. It can come from your customers, suppliers, partners, even employees. Fraud can also occur through phishing and cyberattacks.
Whichever the cause, you need to take measures to prevent fraud from occurring in your business. Know your suppliers, partners, and customers. Lastly, protect your hardware and software systems to prevent hacking.
What to Do About Your Troubled Business
You now know the signs that indicate your business may be in trouble. Let’s now explore what you can do to save it and turn things around.
1. Identify the Specific Warning Sign
The first thing you need to do is identify the specific red flags in your troubled business. Is your cash flow negative? Are your competitors taking over your market share, or are you facing a legal dispute? By identifying the warning sign, you can create strategies and plans to deal with it.
2. Determine if You Can Control the Issue
Some warning signs, for example, poor cash flow, are within your control. Some, such as high-interest rates, are not in your locus of control.
For the signs in your control, look for ways to resolve them. For those, you can’t control, find ways to weather the storm.
3. Seek Professional Help
Whichever problem you are dealing with, it’s advisable to seek help from a professional. For example, if your cash flow is poor, find a certified accountant to advise you on ways to improve it. If you don’t know which compliance rules apply to your business or industry, talk to an attorney in your state.
It’s always a good idea to keep an eye on both good and bad things happening around your business. Doing so will enable you to mitigate any arising issues and resolve them before they cause the demise of your business.
Many warning signs show a troubled business – some you can manage, while others are beyond your control. Strive to determine the ones in your control and find ways to resolve them.
Below are a few resources that can help you improve your business knowledge and improve your understanding of a business that’s in trouble.
Picking up a book is a great resource for in-depth information on virtually any topic. You can read the book from cover to cover or browser table of contents to go directly to the chapter that interests you the most.
Take a few minutes to see what books are published that can help you build a strong and stable business.
Below are two links one is for Google book search results, and the second is for books from Amazon.
Taking a course is another excellent way to build a strong business and expand your knowledge of running and operating a business. Naturally, this is a broad topic, but you can go into depth into the area you’re looking to improve your knowledge and skills.
The link below offers a list of courses that can help you improve your business. Take a moment to see what courses are available and if any of them appeal to you.
Stories covered by the media have credibility and offer a fresh perspective compared to reading articles. So even though a lot of the news is negative, there are lessons to be learned.
Waiting for new stories to appear on the nightly news related to troubled businesses is not the way to go; instead, use a site like Google News where you can get the latest, most popular, and archive new stories related to businesses in trouble.
Going over the stories allows you to notice what to avoid and what not to do.
YouTube is another excellent source of valuable information. I like using YouTube because I’m a visual learner and enjoy watching videos.
One of the features I like about YouTube is that you’ll get a list of related topics when you’re watching a video. Most of the time, those related topics are ones I haven’t considered and allow me to broaden my understanding.