12 signs that your business could be facing difficulties

A business succession that doesn’t work as planned, management or personnel problems, the loss of an important customer: all entrepreneurs experience difficulties at some point. But when the difficulties mount up and persevere, it’s time to act before it’s too late. However, there are certain signs that can alert you to the problem. Here are the main ones.

1. Loss of a major customer and strong decline in sales

Many entrepreneurs are likely to experience this in their career. The loss of a major customer has a significant impact on sales and, combined with other difficulties (such as those listed below), may require that measures be put into place quickly to rectify the situation. You will also need to ask yourself why this customer is no longer doing business with you.

2. Excessively fast growth

During rapid growth, the pace of activity is sustained, the order book is full and money is coming in. But at the same time, many issues can arise that can be detrimental to the company. First of all, growth frequently requires an increase in resources (premises, equipment, new employees, etc.) and permanent investments, so you may encounter a cash flow problem. Growing orders will also increase the need for working capital. Moreover, there may be some internal disorganization in the face of this sudden expansion and too much pressure on the employees.

3. Aggressive competitors offering incentives

If your competitors’ offering is better than yours, beware and adjust! They could take some of your market share and contribute to your business’s decline.

4. General market decline

As technology has evolved, some sectors have declined and have almost disappeared (think of the emergence of music streaming applications and records). During the pandemic, other types of industries, such as aviation or cultural industries, saw their activities drop drastically. For some companies, the economic climate can have an impact on whether business goes down or up. If this is your case, be careful!

5. Significant increase in production costs and procurement timelines

Inflation, increased transportation costs, shortages of certain raw materials or core components, rising wages: there are many factors that impact your supply chain… and your cash flow. The pandemic has had a particularly negative impact on this aspect and production costs for most companies have risen rapidly.

6. Excessively high fixed costs

Fixed costs are recurring expenses that you must pay, regardless of the level of business activity. They include property taxes, rent, overhead costs, etc. If they are not minimized, they can become overwhelming, especially when sales decline.

7. Lack of cash resources

The most important criterion for assessing a business’s viability, and the one that defines everything else, is cash flow. Experts often recommend that you have at least 12 weeks of visibility into your cash flow needs. If you’re scraping by from week to week (or from one payroll and rent payment to the next), there’s a problem. Without adequate cash flow, you won’t be able to meet your obligations for purchases, salaries, rent and other fixed costs.

8. Major IT issues

Having efficient management tools is essential to the smooth running of a business, especially when it comes to knowing your products’ profitability. If this is not the case, your activities and staff could be negatively affected.

9. Acquisition of a competitor at an excessively high price

You thought that by buying one of your competitors, you would open new horizons and gain market share. However, a high-priced acquisition could have an impact on your company’s performance.

10. Staff shortage

If you are experiencing a high rate of absenteeism or attrition among your key personnel, you need to ask yourself some questions. With COVID-19, staff shortages are affecting all sectors. It is therefore essential to be able to retain the right employees and offer them a motivating work environment.

11. High debt ratio

Did several of your projects exceed the initially planned costs and you had to use your line of credit and go into debt? Be careful: you must be able to repay your loans while having some leeway to deal with unforeseen circumstances.

12. Financial information that is not up to date

This is usually a sign that the business is in bad shape. Moreover, it will be difficult to determine the exact causes of any sudden drop in profitability and adjust quickly since the available information will not give you a clear picture.

In short, the warning signs of problems are never isolated. It is the combination of several of these signs that points to an alarming situation. However, whatever the state of your finances, there are solutions for businesses. Don’t wait to act! Call on one of our business recovery professionals or one of our licensed insolvency trustees. Bankruptcy is not the only option. A recovery plan, voluntary liquidation or a proposal may also be considered depending on your situation. The sooner you call us, the more options you will have.