4 Early Warning Signs Your Business Is Failing (& What to Do About It)

4 Early Warning Signs Your Business Is Failing (& What to Do About It)

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For small business owners, there are many indicators that can be used to determine success: a growing social media presence, an expanding customer base, or regular lifts in ROI, for example. And while monitoring your business for success is important, being able to recognize signs of failure is equally vital.

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Of course, plummeting sales are an obvious sign of a struggling business, but successful entrepreneurs also train themselves to be aware of some of the more nuanced signs of trouble.  In doing so, they empower themselves to take quick and targeted action, addressing issues before the dreaded “Closed for Business” sign, metaphorically or literally, makes its appearance.

1. Customer Chatter Stops:

When a business is thriving and clients or customers are pleased with performance, proof of their quality experience is often tangible.  Social media forums, like LinkedIn, Twitter, and Facebook, boast of positive customer feedback and referral business is apparent. However, when that chatter starts to die down, or even worse, it becomes negative, business owners are wise to stop and listen to what is or isn’t being said.

What to do:  Though this answer may vary based on industry specifics, Stephen Sheinbaum, Bizfi Founder and contributor to Entrepreneur Magazine, recommends tapping into customers through goods/services surveys, offering promotions to gain new or retain existing customers, and working with employees to engage with customers on social media, particularly to respond to negative feedback in a constructive way and acknowledging positive feedback.

2. Employee Morale is Plummeting:

Your employees are on the front lines of your business and are often first to take the brunt of clients or waning metrics. These things indicate failure, and repeated exposure to that sentiment, particularly if all attempts to turn things around fail, can really do a number on the mental state of employees at all levels.  Combine this with company cutbacks that accompany poor performance (layoffs, decreasing bonuses, or even the end to simple, low-impact perks), and your employees will start to suffer right alongside your bottom line.

What to do:  Concerns over work place stability often spread like wildfire, and when they go unaddressed, morale takes a deep dive. Maintaining a reasonable level of transparency among your employees and helping them understand the challenges and proposed solutions to increase business can go a long way.  Whenever possible, get employees involved in solutions to get back on track and reward them for a job well done.

3. Debt Collection Communication Increases:

Even at the height of success, bills are inevitable.  However, if you’re looking for a sign that your business is failing, your relationship with debt and payment is a good indicator of where your business stands. You can always expect monthly bills to hit your mailbox or inbox, but if collection efforts exceed that, take note.  Once notices start rolling in and vendors, or worse, collectors, start making contact, you’re already at the top of a very slippery slope.  The occasional missed bill may not be your financial albatross, but if it begins to happen with more frequency, it’s time to evaluate the writing on the wall.

What to do: Keeping accurate and up-to-date financial records will go a long way in helping you devise a plan to get out of debt. A thorough analysis of your current and historical cash flow will allow you to determine where you can make cutbacks or adjustment.

Additionally, when it comes to stabilizing cash flow, which will help pay down debt, business owners may want to consider getting creative by offering incentives, such as a discount for payment up front  (if applicable), or speaking directly to vendors about potential adjustment to payment terms and schedules.

4. Your Credit Scores Drop:

As customers stop chattering, employees start becoming disgruntled, and bills start going unpaid, something else will start to decline–your business credit score. Your personal credit score may drop too if you’ve intermingled personal and business finances.

This is troubling for several reasons. The most obvious of these reasons is, of course, it means that your inability to pay your debts has become so frequent that your vendors, lenders, and suppliers have reported you to the credit bureaus.

Beyond that, and perhaps more detrimental to the failing business, is that a bad credit score, business or personal, will only make things harder.  Without a healthy cash flow, you will likely need to turn to lending opportunities, such as loans or trade credit, and having poor credit will make borrowing more expensive because your are seen as a riskier bet.

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What to do: If you haven’t done so already, get a copy of your personal and business credit reports so you can identify the source of your credit woes and begin addressing those accounts. (You get both personal and business credit scores for FREE when you sign up for a Nav account.)

From there, utilize your cash flow analysis (and your accountant, if you have one), to implement a budget that will allow you to reconcile your debt while keeping your business afloat and boosting your credit score.

Maintaining a thriving business isn’t always easy, and many small business owners will be faced with difficult financial situations; however, being able to recognize the early signs of a failure can make the difference between momentary financial strife and that permanent “Closed for Business” sign.

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About the Author — Jennifer is a alum of the University of Denver. While in the graduate program there, she enjoyed spending time identifying ways in which non-profits and small businesses could develop into strong and profitable organizations that while promoting strong community growth. She also enjoys finding unique ways for freelancers and start-up businesses to reach and expand their goals.

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