What are the warning signs of bankruptcy?

 

Businesses do not fail overnight. If a business has just one or two major customers and they go elsewhere or become bankrupt themselves, the fallout can certainly be sudden and dramatic, but usually, the decline is much more gradual than that.

In the vast majority of cases, there will be a number of warning signs that all is not going well in your business. If you are able to identify the symptoms of a failing business and act immediately, you’ll greatly increase your chances of avoiding bankruptcy and making a full recovery.

But what are the tell-tale signs of a struggling business that you should look out for? Here are a few of the warning signs of an impending bankruptcy…

 

  1. You’re struggling to regulate cash-flow

Maintaining a healthy level of cash-flow is one of the biggest challenges for business owners. Experiencing a temporary cash-flow shortfall in itself is not necessarily something to be hugely concerned about. It could be the result of seasonal sales fluctuations or the fallout of a substantial one-off expense. However, if you regularly struggle to make payments on time then you have a serious problem that needs resolving now.

 

  1. You’ve reached your borrowing limits

It’s certainly not unusual for a business to borrow money to operate effectively and grow, but if you have reached your borrowing limits on finance facilities such as credit cards and overdrafts, you need to ask why. Rather than desperately searching for other funding types, now’s the time to reassess your business’s financial position before it’s too late.

 

  1. You’re facing constant creditor pressure

The occasional email about a payment you might have overlooked is not necessarily anything to worry about, as long as you don’t make a habit of it and have a reliable payments process in place. However, if you’re constantly on the receiving end of angry letters and phone calls from creditors then that’s symptomatic of a real problem. Creditor pressure can quickly escalate into legal action, and before you know it, you could be facing a real fight just to keep your business afloat.

 

  1. You don’t pay yourself

Struggling to pay employees will usually sound the alarm bells immediately, but many company directors do not think twice about not paying themselves. If you or other directors haven’t taken a salary for a number of months then it could be an early sign that all is not well.

 

  1. Your employees are leaving

There’s nothing unusual about staff turnover, and in fact, it’s an unavoidable part of running a business. Employee turnover becomes a problem when you’re constantly losing important members of your team and even new hires don’t stay long before they’re gone. This could be indicative of a wider problem such as low morale, poor working conditions or ineffective management, all of which could be a sign of a failing business.

 

  1. You go from one problem to the next

If you spend the working day putting out fires rather than concentrating on growing your business then there could be some serious issues at play. This can often be seen in businesses with ineffective senior management, where the decision makers are not pulling their weight. If you feel like relationships are failing and you’re being forced to do more than your fair share then bankruptcy could be just around the corner.

 

Act now before it’s too late!

If you recognize any of these potential warning signs of bankruptcy in your business then it’s essential you act immediately. With the right help, all of these problems can be quickly resolved, but the longer you wait, the fewer your options and the greater the impact will be.

Author: Mike Smith is the senior director of Companydebt.com and an insolvency specialist with four decades of experience helping businesses overcome problems with debt.