How can small businesses improve efficiency? Running a business can be difficult, especially when the market is very competitive and dynamic. One in every five businesses fails in the market, and being an entrepreneur watching your business fail might be your worst nightmare.
However, you can save your business from going bankrupt by being smart and vigilant about it. Here are 10 signs that state your business is in big trouble:
1. Dwindling Funds
Businesses depend upon continuous cash flow. A depleting cash reserve can become the primary reason behind a business’s failure. When a business operates with a cash deficit, namely, negative cash flow, it risks depleting its cash reserve.
Here it is important to note the difference between profit and cash. Profit refers to an accounting principle for financial gain, whereas cash is the actual money at the business’s disposal. Management and analysis of cash flow help to understand the environment of your business. Further, cash flow analysis provides strategic insight that aids in making profitable decisions benefiting the business in the long run.
2. Difficulties In Raising a New Business Loan
Failure in securing a loan is one of the very first indicators of potential financial trouble. If your business application is taking way too long to be approved or is eventually declined, it signifies an underlying financial threat. Because of a very diligent screening procedure, the lender might find a problem overlooked by you. Hence, the introspection of SMEs becomes the utmost priority in this situation.
In many cases, the lender might ask you to re-apply for the loan after a while without stating any reason. The lender does it because they don’t want to push away a potential customer hoping that you would sort out the problem on your own and eventually apply for a new loan. So, before applying for a business loan, inspect your business thoroughly.
3. Too Much Debt
Outside financing is essential to scale up any business. One of the ways to obtain this is by acquiring debt; it is known as debt financing. However, what happens when the business has too much debt? Too much debt can overburden a company and make it very difficult to repay the loan. It could be catastrophic to the business and eventually lead to bankruptcy. Rising interest rates are an alarming sign that should not be ignored.
A good method of keeping the debts in check is comparing the debt ratios with other businesses occupying the same niche to get a strategic insight into your business’s financial situation and then taking meticulous decisions to lower the risks.
4. Slow Paying Customers
Late payment of invoices is a growing culture in many business hotspots of the world. This might cripple a business financially, especially its ability to pay the employees and suppliers. When a company selling the product issues credit to the customer directly, then the sale is not reported as cash received. These non-cash sales are tracked by an account called accounts receivable. A rising number of accounts receivable of a company is a sign of financial distress in a company.
To avoid late payment by the customers, a business can deploy several measures. Some of them include charging late payment fees, offering a small discount for paying early, or simply putting gentle reminders once the invoice is a week past due.
5. Sales Are Plummeting
Let’s be honest, plummeting sales is a nightmare for many business owners. What happens when sales decrease? It is a sign of financial distress! Various steps could be taken to increase the sale and recover the financial condition of your business.
Asking for customer feedback can prove to be an efficient way to deal with this problem. You can tailor your products or services according to the feedback, making them desirable for the customers. Eventually, increasing the sale. Apart from that, updating the business’s website design and selling techniques can bear fruitful results. Increased advertisements and frequent giveaways aid to increase the brand awareness among the consumers leading to the healthy growth of the business.
6. Fading Popularity
Successful businesses know the value of word-of-mouth marketing. When a company’s name becomes synonymous with this product, it is considered the company’s greatest feat. Customers should buzz about your company, and its absence signifies huge troubles laying ahead of the company’s future.
Now, getting people to talk about your company is crucial for its survival. Customer feedback can help you pinpoint the reason behind the fading popularity of your business. Ensure to maintain a well-structured review answering team to find out the snag in your products or services. Once a customer is satisfied with your product or services, ask them to provide an online review to counter any negative review of your brand. Leverage social media trends to gain popularity and trust among potential customers.
7. Lack of Training
Investing in professional training can have many benefits, and neglecting it can inflict severe consequences on the business. Lack of training can affect your employees’ productivity and efficiency. Deteriorating the performance of the employees’ can hinder the growth of the business causing financial distress. A well-trained employee is less likely to be inefficient and frustrated. Training can also increase employee retention rate as a well-trained employee would be happy with their performance and would be less likely to leave the company.
Training also promotes workplace safety and significantly reduces the chance of incidents occurring in an office. A company bears the responsibility for the health and safety of its employees. Keeping the employees updated with new policies, mandates, requirements, and practices reduces the risk of running into legal issues, preventing a lot of trouble. Thus, training is more than essential for a business aspiring to sustain itself in the long run.
8. Fewer Raises Handed Out
Low salary and financial worries are some of the most common causes of workplace stress among employees. A well-paid employee is less likely to leave the company, which relieves you from the risk of losing good employees. It also spares you from the daunting and expensive task of hiring and training new employees. Frequent raises are the most rewarding factor for the employees, making them loyal and sincere towards the organisation.
Well, handing out frequent raises to the employees can be financially challenging for any business. Hence, here are some effective ways to tackle these problems effectively. Cutting costs from some of the not-so-important aspects of your business and channeling the money to provide higher salaries is the most efficient way to deal with this challenge. Further, it is wise to focus on the key employees and high performers as they depend upon them.
9. Unhappy Employees
Unhappy and frustrated employees can become the greatest bane for a company. They create toxic and stressful work environments, negatively influencing the productivity of other employees. If the situation is not kept in check, it can destroy the whole work culture of the company. How many employees are unhappy? Is employee engagement declining?
The best way to deal with unhappy employees is by acknowledging the problem immediately and resolving it as soon as possible. Promoting the idea of work-life balance, providing career opportunities and financial incentives can positively impact your company’s work culture. This would counter the creation of toxic work culture as a well-rewarded employee will be predisposed to be gratified and productive.
10. Defection of Employees
Is the number of your employees dropping? The defection of employees could be expensive and deteriorating for a business. Further, hiring new employees is an expensive and tiring process. Hence, the retention of good employees should be the utmost priority of a business. A well-trained, well-rewarded, and happy employee could prove to be the most valuable asset of a business. Hence, the retention of skilled employees is not just important but essential for the survival of the business in the market.
How can a business improve its effectiveness? Sustaining a business requires diligent analysis of these signs of distress. Once any of these signs that state your business is in big trouble emerges, strategic remedies should be employed as soon as possible to counter the negative impacts on your business. Make sure to keep an eye on these signs and keep your business away from any trouble!
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Q. What are the consequences of poor cash flow?
Ans. Poor cash flow can hinder the functioning of a business. As the expenses and debt are satisfied using the cash reserve, the business goes under financial strain.
Q. What are the signs of a poorly managed company?
Ans. Signs like poor cash flow, hindrance in securing a business loan, low employee retention ratio, etc. indicate that the business is poorly managed.
Q. Why should you prefer a loan?
Ans. It is highly preferable for fast-growing businesses or to satisfy short-term financial needs, and the best part of debt financing is that it is not required for the owner to give up any part of the shares to get the money.