7 Warning Signs That Your Business Is In Trouble

Most business failures are result of internal factors

What with the current economic situation, it is rare to find a business owner nowadays who isn't at least a little bit concerned about the well-being of his or her business. As a matter of fact, it wouldn't be surprising to learn that any number of worrisome "what if" situations play out in most owners' minds on a daily basis. Despite their natural tendency to be concerned, business owners should realize that sudden, catastrophic business failures generally occur as a result of some outside circumstances, and are really pretty rare. Most business failures are actually the final result of one or more internal factors, and in the vast majority of cases, clear warning signs existed that should have alerted owners and managers that trouble was afoot. Simply put, the businesses failed because nobody saw or paid attention to those warning signs.

Sadly, while the signs are quite easy to spot, too many managers are prone to ignoring them, naively trusting that the problems will correct themselves. The wise manager/owner needs to keep a sharp lookout for the signs, and to realize that it is as foolhardy to rely upon external circumstances to solve internal problems as it is to let a small problem grow unfettered into a major one. Here are a few of the subtle (and not-so-subtle) warning signs that things are heading south for your business:

1. You regularly pay your bills at the very last minute, or late. What you are essentially doing is using your vendors and service providers to finance your operation. While this might seem to be a great idea (an interest-free credit line is good, right?), not only does it place an unfair burden on your creditors, it will inevitably have an adverse affect on your creditworthiness.

2. Your customers regularly pay their bills at the very last minute, or late. If your customers are having problems, how well-insulated is your company from their financial difficulties? If a significant portion of your bottom line is dependent upon accounts that are difficult to collect, your customers' problems are destined to become your problems.

3. Your best customers are buying less (or worse, nothing at all). Given the fact that the old 80/20 rule applies, and that 20% of most businesses' customers account for 80% of sales, it is essential that you notice and respond when that 20% seems to be walking out the door. It could be a sign of either a shift in consumer appetites that you've failed to observe, or an internal quality or customer service problem. If the former, you need to take a good look at the market and determine how your company can better serve it, whether you need to cultivate new markets, or even gear your company to a different product or service, for which a strong market exists. If the latter, it might be time for some serious re-evaluation of the way the different areas of your business are functioning, with each other and with your customers. If the problem lies with one or two employees, it can be a relatively easy fix. If the problem is evidence of a systemic attitude or way of doing business, you've really got your work cut out for you!

4. You aren't getting any new customers. This should be a warning sign for any business, but it should be a lights flashing, sirens screaming alert if it is happening at the same time as #3, above. No matter the cause, loss of market share should be a cause for concern and appropriate action.

5. Cost percentage of sales is increasing. If your net profits aren't rising proportionally to your net sales, you've got a problem that you might be prone to ignoring, but you do so at your business' peril. Whether it is simply a matter of needing to adjust pricing to offset increases in costs, or an indication that one or more areas of your business are operating inefficiently, no business can survive - much less thrive - when their profits margins continually hemorrhage.

6. Increase in inventory levels with no viable justification. If you notice that your inventory levels are spiking, and there is no equivalent increase in sales, there may be a problem in your inventory control activities or a disparity between sales projections and actual sales performance. Either way, the inventory that is just sitting in your facility represents less-than-liquid asset, and could well be an indicator of a looming cash crunch.

7. Employee morale is low. When even a few employees start feeling negatively about the business, that negativity can spread more rapidly than a computer virus. Productivity and quality levels can drop as other employees find themselves relating to the negative feelings, and it is just a matter of time - and not much time, at that - before your customers pick up on the negative attitudes. It can be difficult to determine the source of employee dissatisfaction, since employees who are already unhappy might see little prospective benefit to be gained by opening up to management, and might in fact suspect that a supervisor or owner's entreaties represent a trap. Despite the inherent challenge presented, it is essential that you get to the root of the attitude problems and do what is necessary to resolve them, even if it means terminating employees who are least likely to be rehabilitated, while endeavoring to eliminate the circumstances that had originally demoralized them.

Now, before you get altogether upset, saying to yourself that you see examples of all these factors in your business, keep in mind that the extent of a given problem is what determines how badly it can impact your business. Just as a single sneeze isn't a forewarning that you are coming down with some deadly strain of flu, isolated, minor instances of the above warning signs can be observed in every business, even those that are most efficiently run and profitable. As a prudent business owner, you need to be aware of the situations that affect your company, while ensuring that the efforts to correct any problems are proportional to the problems themselves. The loss of a single customer isn't necessarily the forbearer of a mass exodus, and one complaining employee doesn't necessarily indicate an impending mutiny. If you respond appropriately and effectively to the little problems, they aren't likely to grow into major problems that threaten the survival of your business. And that is one worry you really don't need, especially when times are tough.