I originally wrote this article during the 2008 Financial crisis in the U.K. whilst I was living there, and today I feel it might be relevant looking at how many business are or are going to suffer because of the health emergency caused by Covid.
The first thing is a due distinction, there’s a thin line between a business that is failing and one that is simply experiencing a temporary cash-flow shortage mostly to seasonal decline in sales of its products or services.
Companies do not fail overnight.
Instead, in many cases, there is a gradual and almost imperceptible decline,and business owners sometimes ignore or overlook the situation,particularly when they’re unaware what some of the symptoms of a failure might be.
1) Creditors are not paid on time.
Every company has payments and financial obligations that have to be respected , whether it’s to landlords, employees, suppliers, or banks.
Even though it is not unusual to struggle to make the occasional payment, particularly for smaller companies , if payment requests from creditors are received on regular basis, then it could be symptomatic of a serious and persistent cash-flow issue.
2) Low employees retention rate.
Staff turnover cannot be avoided as an integral part of running a business. Even the most successful companies lose employees all the time.
However, if employee turnover rate is particularly high, then it’s a red flag that in your business is not in good health.
Low staff morale can be caused by a number of factors such as low pay, uncomfortable working conditions, or ineffective and poor management and leadership.
The result is low levels of productivity and high operating costs in wages.
3) Borrowing its no longer an option.
If the business have reached the borrowing allowance, like bank overdrafts or credit cards, and have been denied further financing, there are some questions to be asked there.
Instead of trying to acquire additional funding, the cash situation should be reassessed and identify root causes for that.
4) The core business has been diversified.
Companies often diversify products and services to grow, but moving too far away from core business will often increase costs, open up to new competition, and cause the lost of competitive advantage that’s been built along the way.
An extremely diverse portfolio could be a sign of a struggling business that is seeking new revenues streams.
5) Focus is on solving problems rather then building the future.
If most of the time is spent moving from one problem to the next rather than focusing on the big picture and the strategy for the future, then there could be some serious issues at stake.
It’s so easy to get trapped up in micromanagement, and being so involved with the day-to-day running of the company could mean that the leadership team is failing to identify and solving the root cause of a problem.
6) The team is not informed enough.
It’s very difficult to take decisions about the future of a company, or solving particular problems without accurate and timely management and detailed information.
With limits at understanding the situations will reduce the ability to deal with them effectively.
7) Inventory is overflowing.
The business might be functioning perfectly at the moment, but if it’s holding too much inventory, then trouble could be just around the corner.
Hopefully all the businesses that are struggling in this particular moment will come back stronger than before. Approaching everything with positivism is the 🔑
Investing too much capital in products could leave businesses without the cash needed to pay creditors.