It’s surprising how many business owners don’t recognize the impending signs of trouble within their business, until it is too late. Many of them continue operating as normal, not noticing the writing on the wall. Others may have some level of awareness that things aren’t right, but they don’t take action to correct those problems or avoid the inevitable. Instead, those businesses begin to falter and struggle.
The reality is, that taking notice of the warning signs gives you the opportunity to correct those issues before they become too big a problem to fix. If you get on top of those issues early enough, and take action, they shouldn’t cause your business any trouble at all.
Here are 7 warning signs of impending business trouble to watch out for:
1. Slow or Late Paying Debtors
If you have customers who regularly pay their bills at the last minute or even late, you could be facing impending cash flow problems. After all, without those invoices or sales being paid on time, your business is essentially giving them free credit. The problem is, you have bills to pay, and without the incoming cash from those sales, paying your bills may not be possible until those late paying customers cough up the cash.
Get on top of those overdue accounts and tighten up your account policies to reduce those payment delays.
2. Trouble Paying Creditors
Are you constantly juggling cash in an effort to pay your creditors? If you tend to have regular issues finding the money to pay your bills, including money you owe to the ATO, your business could be facing problems.
When cash flow issues arise in your business, they tend to spread across to other areas of the business as well. Aside from this, when you’re constantly late paying your bills, you put strain on your creditors’ businesses and could potentially ruin your own credit-worthiness at the same time.
3. Sales Are Slowing Down
If you’re noticing that regular customers are buying less from you, it’s time to sit up and pay attention. The good old 80/20 rule applies here, where 20% of your regular customers account for 80% of your overall sales. If those regular customers are buying less, this could indicate problems within their own businesses – or worse – it could mean they’re buying elsewhere.
4. Increasing Discounts to Get Sales
Are you forever thinking of ways to entice customers to buy more? This might mean offering discounts in order to get a few more sales, or trying to promote sales to encourage more customers to spend money with your business.
Discounting your prices may attract a few bargain hunters occasionally, but they may not always translate into the profits you’re seeking. It also means you’re reducing your revenue in an effort to bring in any additional sales you can get. This spells trouble.
5. Increasing Debt Levels
Relying on credit to help cover the cost of doing business can be a strong indication that you are overextended. This doesn’t just mean increasing credit card limits or using your overdraft to cover costs. It also means exceeding your regular credit limits with any trade accounts you have with creditors.
6. Increasing Cost of Sales
As the cost of each sale increases, your net profit should also increase accordingly. Yet far too many business owners fail to adjust their pricing to account for increases in the cost of sales. This obviously leads to a reduction in profits, which can lead to further cash flow issues. Be diligent about protecting your overall net profits.
7. Low Employee Morale
When employees start feeling negative about working in your business, this can make productivity levels plummet. What’s more, negativity spreads like a virus. Before you know it, good employees start actively searching the employment ads for alternative job options. This can have a detrimental effect on your business if it’s not handled quickly.
It’s very possible to observe isolated instances of each of the above warning signs in almost every business from time to time. However, when they become regular concerns it pays to work on rectifying them as quickly as possible.