Yaneek Page | Signs your small business is in trouble

Recently, I was introduced to a small-business operator seeking mentorship to save his declining business. He has been operating for over seven years, and for most of that time, the business has been unprofitable.

However, because the company generates large volumes of cash daily, the owner has been able to sustain the losses by skilfully managing his cash flows to delay outflows of cash and access lines of credit, which he services by paying the minimum balance.

The result is now a mountain of debt, cemented by years of mismanagement, that appears almost impossible to overcome, and closure is inevitable and debilitating. He and his business may have enjoyed a different and more positive outcome if he had learned to recognise the financial and operational signs that the company was in trouble much sooner than he did.

Like many entrepreneurs, he didn’t receive any formal training, mentorship, coaching, or other such support before he started business or during the earliest periods when this knowledge and guidance are most effective in steering the venture in the right direction.

For the benefit of other business owners or prospective entrepreneurs, here are eight of the key financial tell-tale signs that your business is in trouble and may require immediate remedial interventions to change the trajectory. The best approach is to go through this list and proactively create an action plan to help drive financial success and reduce the likelihood of failure.

1. No financial management specialist in the business:

If there is no one in your company, or outsourced on contract, who has assigned responsibility for accounting and financial management, it usually spells trouble. In previous articles I have explained in detail that accounting and financial management are not the same. One deals with bookkeeping, and the other deals with the strategic financial planning, more so oversight and management of the company’s finances to ensure that investors and shareholders enjoy the best possible returns while positioning the company for sustained and profitable growth.

2. No financial statements, software, or operational budget:

A lack of financial software, resources, financial statements, and an operational budget is a tell-tale sign that your business is being set up to fail. Let me explain this in a way that may resonate with many. Imagine yourself going to school with the hope of achieving straight A’s, yet you didn’t acquire the schoolbooks, materials, and supplies needed. In fact, you don’t even have the minimum resources like a pencil or notebook so that you can take notes in class. To make matters worse, you leave home daily with no breakfast in the morning and have no lunch during the school day. This is what happens when an entrepreneur launches a business hoping to achieve success with absolutely no financial knowledge, resources, tools, or even the sustenance to support those objectives. Only luck and miracles can save the business from certain ruin.

3. Increased ageing receivables:

This is another big one because I know many entrepreneurs experience this in the regular course of business and mistakenly treat it as normal. Though in our cultural context everything, including payments, is fashionably and acceptably late, it is a catastrophic problem for business. If you find yourself having to constantly chase the money that is owed to you, then your business will soon be in trouble. You cannot successfully operate a business where you are spending considerable resources and time chasing money that is owed to you. It is a misuse of assets and capital because instead of directing scarce resources to increasing your sales, business expansion, diversification, and innovation, the entity is scouring rabbit holes chasing the unviable. Note, a customer who consistently does not pay on time and who forces you to chase them for payment, or worse yet partial payments, is very bad business. It can’t be emphasized enough that no business is better than bad business because bad business burns your pocket and ruins customer relationships.

4. Sluggish sales:

It is important to remember that sales are the lifeline of a business and, therefore, business owners must track the sales levels closely. Any noticeable decrease in sales over consecutive periods is a red flag.

5. Cash flow issues:

Though sales are paramount, it is not the same as cash flows. You can be making sales and not properly managing cash flows, resulting in your company quickly falling into financial ruin. The number one reason good businesses go out of operation is a lack of liquidity. The inability to meet short-term expenses and overheads is a predicament that many small businesses face because they don’t properly plan for and monitor the actual inflows and outflows of cash.

6. Growing debt:

In business, debt can be a good thing and a bad thing. If you are experiencing a rising accumulation of debt, without a corresponding increase in profitability and business expansion that supports your major goals, this is a red flag.

7. Late or missed payments:

If your business is habitually paying its bills late, this is a tell-tale sign of trouble on the horizon.

8. Overreliance on personal finances:

Once you find yourself having to go into your savings or tap your personal funds to help the business, it’s the clearest sign yet that the business is in trouble.

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Yaneek Page is the programme lead for Market Entry USA, and a certified trainer in entrepreneurship.yaneek.page@gmail.com