If your business is in financial distress, there are warning signs you can watch out for. By recognising these signs and taking action quickly, you can give your business the best chance to survive.

1. Reduced cash flow and profitability

Cash naturally comes in and goes out, but if your cash flow is consistently a problem and you find that you are always in need of more cash than you have, your business may be under financial strain.

Some of the signs your business might have a reduced cash flow include:

  • having a large cash deficit
  • customers payments are regularly late
  • you're struggling to pay your suppliers
  • low profit margins.

2. Changes in customer behaviour

Falling demand for your products or services, or a decrease in the quality due to financial constraints, can have a major impact on your bottom line and affect your customer base.

Changes in customer behaviour might include:

  • a decrease in sales
  • loss of major customers
  • more complaints or refund requests.

If you’re experiencing these changes in customer behaviour, you may want to seek feedback from your customers. This could include sending a survey or reaching out via phone call or email.

3. You're not able to pay debts and bills

If you're having trouble keeping up with your bills or paying them on time, it could be a sign of financial trouble. Missing payments may suggest that your business does not have sufficient funding to continue running.

If you are in a position where your debts are mounting, you will need to look for ways to improve your cash flow. Think about:

4. Losing your staff

Losing staff can be an indicator that your business is headed for financial trouble. If you are having to replace staff frequently, you may be losing much needed resources by spending time and money on training new staff.

If staff retention is a problem, it's important that you identify why quickly to protect your bottom line. Think about:

  • identifying what kind of person would be an ideal candidate when interviewing and recruiting for the role and investing time in ensuring you employ the right person for the job
  • ensuring your business provides a positive working culture that rewards staff for their performance
  • providing good quality training to new staff, and offering development opportunities for existing staff.

Get your business back on track

It’s important that you don’t delay taking action to resolve any signs your business is in financial trouble. Putting them off may cause them to get worse and result in needing to close your business.

To help get your business back on track, consider the following tips:

  • find a good bookkeeper or accountant to help you get back on top of your finances and identify the areas that are important for you to monitor
  • make sure you have a good filing system that can keep track of and help you easily find all your invoices, bank statements and other financial records
  • set aside time on a quiet day each week to update and review your financial records so you can identify any problems ahead of time
  • undertake some financial management training to help you better understand the important practices and manage your finances effectively
  • prioritise taking care of yourself and your mental health through the support services that are available for small businesses.

Still not sure?

If your business is experiencing severe financial trouble, it may no longer be viable to keep running. Use the Australian Tax Office business viability assessment tool to assess whether your business is still viable.

If you're still not sure, talk to a business, legal or financial professional.