Warning signs your business is in financial trouble

Cash comes in and out of your business. But if you always need more cash than you have, your business may be under financial strain.

 A reduced cash flow puts you at risk of not being able to pay your debts or cover your day-to-day operating costs.

Signs you might have a cash flow problem include:

• not knowing how much money is coming in or going out of the business
• customers often paying you late, which leaves you without enough cash to cover costs
• finding it hard to pay your suppliers or pay debts, such as loans or taxes
• low profit margins.

You can improve your cash flow by using a cash flow statement. This helps you forecast your cash flow and know exactly what you owe and when.

If your debts are growing, you could sell old or excess stock and inventory or collect money owed to you.

If your business can’t generate enough profits, it may not be able to meet its financial obligations, manage its debts or secure future funding.

If your business experiences a weakened financial position it can increase the risk of defaulting on debts, investment losses and bankruptcy.

Signs of poor profitability include:

• not being able to pay yourself a salary from the business
• your costs have increased but profits haven’t
• you’re relying on borrowed funds to keep the business operating
• you’re finding it difficult to get new investors or secure loans.

Falling demand for your goods or services can have a huge impact on your customer base and bottom line.

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, consider asking customers for feedback. This could include sending a survey or reaching out by phone or email.

Losing staff can put stress on your business’s finances. If you need to replace staff often, you'll spend a lot of time and money training new people.

If staff retention is a problem, find out why it’s happening and protect your bottom line:

• use exit interviews to ask staff why they’re leaving your business and how you can improve
• identify what your ideal candidate looks like before you interview and recruit employees
• reward staff for their performance
• offer employees a good work-life balance
• give your staff development and training.

It’s important to resolve your business’s financial trouble as soon as possible. Putting it off may cause issues to get worse and result in closing your business.

To help get your business back on track:

• set up your finances correctly 
• use a record keeping system for your invoices, bank statements and other financial records 
• review and update your financial records every week to identify problems early
• get financial management training
• prioritise your mental health and get support if you need it.