When you’re running a business, the ultimate sign of financial distress is usually running out of cash – you just don’t have any money left. However, even though it seems obvious, running out of cash is almost always a symptom and not a cause of business failure. In this article, I outline a few warning signs that financial trouble is nearby (or that’s it has already started). I’ll start by identifying a few telling symptoms, and eventually go down to the typical root causes of financial distress. The key, like any illness, is to catch the symptoms early, so that you can begin to identify the causes.
1) You’re struggling to be profitable.
2) Your margins are slipping (gross or net).
3) Your sales are stagnant or decreasing.
4) Your rate of sales growth is declining
5) You are profitable, but do not have positive cash flow from operations.
6) Renewal sales, inbound leads, or other metrics related to market acceptance are flat-lining
7) Your employee turnover is getting higher.
8) The product or service you offer is decreasing in quality.
9) Your office/workspace/headquarters looks messy.