Thousands of businesses collapse each year, with more being on the edge of bankruptcy. It’s an unavoidable part of business culture. Either you make it or you don’t. But it’s not always obvious when a company is about to go under. Still, there are hints that can signal to you that there are big problems on the way.
1. Drop in revenue
Financial metrics are the first thing you look at when you suspect things are going south. Making money is the main point of business and lack of it spells trouble. Keep in mind, the warning signs don’t have to be related to profit. There are several things that can go wrong in corporate finances. The most essential reason is obviously a drop in profit, but it can go several ways from there. A drop in revenue could be the result of a cash flow issue. The profits might be there, but they aren’t distributed properly. Alternatively, it could be an issue of rising expenses in the company. Perhaps material or labour price has changed during the fiscal year.
You can expect these warning signs to appear quickly if there is a problem in cash management. Due to market fluctuations, the company will be losing revenue and won’t be able to make its payments. To compensate the company might be working in overdraft and working in overdraft for large periods of time isn’t sustainable.
2. Worsening management
Money isn’t the only thing that affects the health of a company. Good management is one of the few things that keep a business afloat. Sometimes this kind of mismanagement will be hidden behind excuses. Leaders will often blame bad financials for the collapse of their business, instead of decisions made regarding the company.
Right before things take a turn for the worst, you’ll find that management positions will become vacant. Senior managers will start to bail because they know the inner workings of the company and they can predict when it stops being profitable for them. Employees with less seniority start to take over in their stead.
3.External help is hired
Hard times call for extreme measures. It might look bad if outside help is necessary to avoid problems, but it’s a sign that things could turn better. If upper management hasn’t left the picture, it must mean they are working on getting things in order. The first people you hire might be accountants, as finances are the name of the game in business. It’s easier to solve other problems when money stops being an issue.
Helping management get their business back on track is something you can also get help for. Some firms like DW Advisory specialize in business advisory just for that purpose. If bad decision-making can be curtailed, the business might still have a chance. After all, that’s what these kinds of firms are for. This type of help is only possible if the company leaders cooperate. Without any cooperation, problems will continue to surface.
4. Cuts are being made
The company is always on the lookout for the bottom line. During hard times belts have to be hardened. You should start to worry if you see them being hardened a bit too much. When important perks are being cut, it’s a sign of distress. Christmas bonuses and raises aren’t the main focus. Things like health benefits and pension plans are essential to workers, and cutting them is going to hurt.
These cuts usually come out of the blue, without any warnings. Combined with any of the above issues, it’s a pretty damning case against the continuation of the business. Morale usually goes down, and with it, you lose most of the productivity workers have.
As an employee or manager, it’s always good to know if your company is headed to the corporate graveyard. There are many signs to look out for and failing to notice them could end badly for you. Both finances and management could be to blame. However, not all is lost if the problems are addressed in a timely manner. If your company is showing any of these signs it might be wise to consult outside help and find a solution that will benefit everyone.