The Warning Signs Of Financial Difficulty

There’s such a fine line between all the pleasures and pain of running a business. The key is to catch the warning signs so we’ve got the time to turn business around.

Good business is when profits are looking up, we can pay our creditors and staff wages, while covering costs and drawing a wage as an owner. Studies show our financial health is an indicator of our mental health while the ultimate sign of financial stress comes when cash is running low. But cashflow shortage is the symptom - not the cause of financial difficulty. The key is to catch the signs so we’ve got the time to turn business around - and our mental health with it. 

Sales Are Down. Profit Is A Struggle

If sales aren’t coming through the door, business simply isn’t business.

Sales effects the essential expenses of payroll, rent and utilities along with investment in new equipment. If there’s a low turnover in inventory and products, we need to look at the most effective ways of shifting our stock. Discounts might be attractive to our customers and an incentive for quick cashflow, but at the end of the day, costs still need to be covered. Making sales might be great, but making a profit is better.

Profit is a simple calculation:
Total Sales – Total Expenses = Profit

An unprofitable business is a business at risk. When we make profits on sales, we’re moving forward. 

Certainly, the economy impacts on sales, especially in retail, manufacturing and hospitality. But if the economy and our competitors are doing well and we are not, it’s time to reassess our sales methods and marketing ideas.

Cashflow Chaos

As business owners, we need to manage our cashflow to pay the payroll, rent, and utilities on time – a very fine balancing act. Sales and profits could be up but it is cashflow that ultimately effects business operations. 

Cashflow Chaos occurs when we lose income and clients, outstanding invoices are not being collected due to bad paying customers or poor accounting practices and there's poor financial management. The flow on effect leads to delay with payments - particularly superannuation and tax - with a drastic cut in costs.

High Employee Turnover

A business is only as good as their workforce. Certainly, each industry has their own challenges when it comes to keeping employees - particularly when long physical hours are involved. Big changes in employee turnover, especially with key personnel, are the first signs of business insecurity.

Growing Bad Debt

Financial stress flares up when we’re struggling to repay our business debts. Profit and assets are not enough protection from business failure while cashflow and cash reserves to make payments are. At this point however, ignorance is most definitely not bliss. Keeping our head in the sand about bank statements, letters or default notices on unpaid bills and repayments will only last for so long - before suppliers and banks come knocking on our door.

Product/ Service Quality Decreases

Cost cutting and emotional distress frequently flows on to a significant decrease in our product and service. But our products and services are the foundations to our brand and reflective of who we are as a business. Ultimately, we want our product’s quality to speak for itself. Keeping an internal track within the business along with welcoming and accepting feedback from customers are great measuring touch points. While marketing and promotion are also important, all the hype and PR in the world will only get our product so far. When our product and service quality goes down, our finicky customers have no qualms in defecting to our competitors.

Are You Ticking These Boxes?

Take a deep breath: We're Right Here. 
A Business Restructure could be your ideal solution.
And if we catch the signs, we’ve got time to turn business around.

If you want to explore restructuring your business and get back on track, get in touch.

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