Warning Signs Your Business Is Heading for Financial Trouble
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Warning Signs Your Business Is Heading For 
Financial Trouble
Michael 
Saluka
Knowing and understanding business insolvency may be daunting, but crucial 
for company directors and other stakeholders. Businesses are undergoing a 
period of uncertainty, and companies must determine if they are heading 
toward insolvency. As per Deloitte’s report, there was a 32% increase in 
corporate insolvencies in 2024 compared to 2023.
There can be many reasons for insolvency, which may be beyond your control. 
Let’s look at the warning signs in this article that re ect business  nancial 
tWrouhbale.t is Financial 
DFiniasnctirael dsisstr?ess is when your company cannot generate enough income or 
revenue, as it cannot pay or meet its  nancial obligations. It could be because 
of illiquid assets, high  xed costs, revenues sensitive to economic downturns, 
or government restrictions.
Why Do Companies Get into Financial Trouble?
For most companies, there is no single reason for their struggles, but rather a 
combination of factors, like
The rapid expansion of 
business Lack of forward-
thinking planning Ongoing 
management problems Poor 
accounting or recordkeeping 
Loss of key employees
Overtrading
Top Warning Signs of Business Failure
Some warning signs indicate your company is on the brink of failure or 
insolvency. Listed below are the same.
Enduring Cash Flow Problems
Continuous struggles to meet  nancial obligations are the most important sign 
of a problem in your company. When your company is paying more than what 
it’s bringing in, it’s already insolvent, even if the owners, partners, or 
stakeholders haven’t announced bankruptcy or started the liquidation process.
Clients Keep Leaving
Your product or service is the main focus; if clients are unhappy, it’s the  rst 
thing to address. Numerous factors affect a customer’s churn, including pricing, 
quality, turnaround time, customer support, etc.
Increased Debt Levels
Although taking on debt can fuel your company’s growth, unmanageable or 
excessive debt indicates your company is distressed. Some warning signs are
Relying on short-term or small business grants to cover ongoing 
expenses. Overwhelming monthly interest cuts pro tability.
Regular creditor chasing for overdue payments.
Debt can be useful, but if it grows too large, it can ruin  nancial stability and 
make it harder to fund and run a small business.
Declining Profit Margins and Revenue
A signi cant red  ag is a constant decline in pro t margins or revenue, which 
indicates increased competition, loss of customer interest, or improper 
marketing of your business. A small example could be your company noticing 
a decline in its subscriptions, suggesting a need to reassess its market 
positioning and value proposition.
Poor Execution
Companies often start with innovative ideas with high potential to penetrate 
the market. However, they lack execution. Effective and rapid execution is the 
key to success, requiring progress monitoring, tracking, and identifying 
shortcomings closely. Unless companies
execute their plans faster than their competitors, they are bound to fail.
Communication Failing or Breaking
Employees often do not know about business cash  ow problems or if it’s in 
danger, and keeping them in the dark can negatively impact your company. 
Relationships are built on strong communication—your company is in serious 
trouble if employees break down. Why? Unhappy employees are sure to  lter 
through your customers. Some ways it can affect your company are
Businesses may unintentionally overlook employees lower in the hierarchy 
who interact directly with customers; remember that these individuals are 
there to address the client’s needs.
Depending on the type of business, the use of jargon may not be 
understood. Inappropriately using technology.
Missing clarity—stakeholders are keeping the information and not 
informing employees.
No Access to Finance
Another clear indicator of your company’s nancial trouble is the inability to 
access  nance when needed. A line of credit or other  nancing arrangement 
can help companies get by and maintain e cient operations throughout the 
cash  ow cycle. When the  nancial circumstances are more stable, it might be 
an environmentally friendly and prudent method of funding expansion.
Speak with the lender and work to arrange suitable nancing to have a safety 
net.
Refused Borrowing Applications
Refusing loans regularly suggests that your business is failing and may be on 
the verge of going bankrupt. Your company may even experience problems 
ordering stocks, as suppliers want to save themselves bad debt by working 
with you. Besides, you may also  nd that you have exhausted all your credit 
lines when looking to ask for funds from existing borrowers.
Late Customer Payments
It may not look like a massive problem at the start, but if customers don’t pay 
on time or refuse to pay, you may have a serious cash  ow problem waiting to 
expand, which may come as a surprise. Therefore, look for tighter payment 
schedules or create effective negotiating strategies to catch the issue before it 
becomes a more signi cant problem.
Even if you receive millions of orders but don’t receive customer payment, it’s a 
telltale sign
your business is failing. Delayed payments can seriously impact your cash  ow. 
Next time you do business with defaulters, impose stringent terms, ask for 
deposits, or reduce invoice payment terms to avoid such a situation.
High Employee Turnover Rates
Normal employee turnover is a part of business and not a serious indicator of a 
failing business. The most successful companies also lose employees all the 
time. However, if this sign is massively high, it is a sign that something is not. 
However, if this sign is signi cantly elevated, it indicates a deviation from the 
planned course of events, or ineffective management, resulting in high costs 
linked to training and recruitment and lower productivity.
Contractual or Legal Non-Compliance
Non-compliance with capital, loan agreement terms, or other statutory 
requirements indicates that raising funds may be di  cult. Therefore, regulatory 
or legal proceedings should be assessed and monitored as they may impact 
cash  ow.
Unclear Vision or Mission
This is a vital sign that your business has started to fail. Without a proper 
mission and vision, you won’t know where to head. Your clients and employees 
must also see the vision/mission to help you achieve it. A clear mission/vision 
can also attract like-minded people, as they know who you are and what you do.
Paste your company’s vision in accessible places and make your company 
stand out from others.
Ways to Improve Your Cash Flow
Cash  ow is your company’s lifeblood; monitoring it is an essential duty 
many business owners often ignore. You can start by
Preparing weekly cash  ows to know what and when to 
pay the bills. Setting weekly time to review and update 
your  nancial records.
Identify cash problems and take necessary 
actions. Speak with your bank for a temporary 
loan or overdraft. Prepare a strict process for 
outstanding debt collections. Selling old or 
excessive stock to generate cash.
Conclusion: Distress, Not Yet Crisis
It’s time to remember something signi cant. These 
signs indicate that the business is
distressed, but the crisis is yet to come. Hence, recovery is possible. The quicker 
you spot the problem and create business turnaround strategies, the better. It 
is pretty simple to put things off, and business owners make matters worse by 
refusing to consider seeking help.
Getting help sooner rather than later can make a difference and allow your 
company to have more options. Most importantly, it’s crucial to never ignore 
crucial warning signs that indicate your business is in trouble.
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