How can I tell when my small business is in trouble?

By Edward Wade

Businesses are hard work. It doesn’t matter if you are just starting out, ruling the market place or if you have been going steady, during a business’s lifespan there are some key warning signs that you should never take lightly. While some business closures, liquidations and administration appear out of the blue, there are often vital giveaways that must be kept an eye on before things drift too far away.

So, what are the common problems business face on a regular basis and what are the realistic solutions available when you need them most?

An imbalanced cash flow

As with any business, put simply, ‘cash is king’. Without a healthy level of cash flow, any business will suffer. A smooth cash flow, is one where there is enough money incoming to cover your outgoings, essentially keeping the whole business running. If it becomes imbalanced it can ruin the whole flow of cash throughout. It could be through a client not paying on time, or the business not being able to pay a supplier on time, perhaps even premature overspending, but it can all set your cashflow off balance and even lead to bankruptcy.

In the long run, without a positive cash flow a business simply won’t be able to pay its expenses and won’t survive. If you see yourself or the finance team putting off paying your debts, or even constantly asking for extensions, it’s a big sign you’re in trouble.

Continuous creditor pressure

The best way to keep creditors happy, quite simply is to pay them on time. Unfortunately, this cannot always be the case and if cash flow is causing you problems, creditor pressure is likely to follow suit. If you’re waiting on client payments, it can be incredibly tempting to put off settling invoices, but it’s crucial to make sure your creditors aren’t getting on your back.

If payments don’t get paid, you find yourself being chased for payments, which can head towards further trouble, with some creditors even resorting to legal action as they attempt to get their money back.

Always using commercial finance

Using commercial finance isn’t always a problem, sometimes during the process of growth, or buying new equipment, commercial finance is the only viable option. But when commercial finance is used to keep you ticking over and to help you get through to the end of the month, that’s where you should spot problems.

Invoice finance, bridging loans and asset finance are packages designed, to give businesses an affordable means of taking out additional finance and slowly repaying it. But if these are used to as a top up each month to keep your business going, not only will you be in further debt with your suppliers, but also any lenders. Keeping an eye on what finance you used is important when seeing if your business is in trouble.

Relying on one big contract

Continually relying on one big contract, or one repeat customer is not the way to maintain a healthy business model. Without a diverse range of clients, you leave yourself vulnerable to having a much lower income if things don’t work out. If you lose a big client who you have been reliant upon, it can also be difficult to pick that income back up and meet your outgoing payments.

Unexpected bills

In theory, no bill should be unexpected, with a well-planned cash flow forecast every business owner should know what their due to pay and when. However, if you’re a start-up or have only been trading for a short amount of time, some bills may catch you by surprise. Often tax bills will catch people out, as they can come quarterly, or yearly and if you haven’t budgeted for this you could end up in serious trouble with the tax man.

Although this may seem obvious, for fairly new businesses, or start-ups, without that experience or know how, this is just the kind of bill that could catch you out.

Customers are recognizing your problems

You might not think it, but your customers will quickly be able to catch on to any potential problems. They will quickly be able to feel the financial problems your business could be facing, they may see themselves paying more for the same product or service, or even receiving less. News and rumors also travel quickly, if you customers catch a snippet that something is going wrong, you may be asked if your going bust or not.

In summary – Remain vigilant

A lot of these problems seem blatant, but too often, it is too easy to simply either ignore the issues your facing, or skate by, not being proactive and tackling these problems before they become a bigger issue.


Edward Wade is a financial writer who focuses on financial advice and tips for SMEs and start-ups. He particularly focuses on commercial finance options and business restructuring.


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