5 Red Flags – When Raised Indicate That Your Business is in Financial Trouble

Updated on: 16 Jan 2024 // 3 min read // Business Loans
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Every business goes through ups and down. Identifying the problem on time is essential. Businesses do not run into trouble overnight. It sends warning signals from time to time. You should be quick to spot these signals and take immediate corrective action. Let us look at 5 such red flags and look at the solutions available such as Business Loans.

1. Sales Figure Falls Way Below Target

When you struggle to find where your next sales are coming from, your business is in trouble. Every company works with a sales target in mind. You need a specific amount of sales to break even. If you continuously start experiencing sales figures in the range of your break-even point, you are not going to generate enough profit to meet your essential commitments. You can have a month or two in a year when the business can be slack. But, if the problem persists, it is a cause for alarm.

You need to investigate and find out the reason for the drop in sales. Is the quality of your goods and services not up to the mark? Are you not making the right marketing efforts? Are you not getting enough leads to generate business? Lower revenue will have a cascading effect on your payments to your creditors, financiers, and the tax authorities. One solution is to improve the quality of your goods and services and increase your marketing efforts. If you have a problem of finding adequate working capital, you can apply for a business loan.

2. Inadequate Cash Flow

Every business needs a continuous stream of cash to thrive. You need to maintain theright balance between your cash sales and credit sales. Credit sales are crucial because you need to give credit to survive in the market. Realizing the receivable amounts on time is essential. You have to follow up with your debtors and ensure that they make the payments on the due dates. Of course, you can experience some fluctuations, but they should be temporary. In case there is a continuous decline in the cash flow, the business will find it difficult to survive.

One way of solving the problem is to improve your debt collection. Start giving less credit in the market. Invoice factoring is one way to tide over the issue. Look out for companies providing such services and try out invoice factoring. You have to pay a factoring fee, but you can get your value of the receivables from the factoring company. Banks have various products like ‘Bills Discounting’ and so on to cater to such issues.

3. Customer Retention is Becoming Increasingly Difficult

Businesses should always be in search of new customers. However, they should take steps to retain the existing ones. It is a cause for alarm if you find difficulty in maintaining your customers. The reasons for losing customers can vary from business to business. You should introspect and see the reasons for losing your customers. One way of improving the situation is to use innovative marketing techniques. Satisfying your existing customers is crucial to your business. Losing customers is an indication that your business is not functioning correctly.

4. Employee Morale is Low, and They Lack Motivation

Why is the employee morale low? Are you not able to pay their salaries on time? Your employees should be happy. A satisfied employee is valuable to the company. It is your prime duty to keep them satisfied. Your employees have a significant role to play in the success of your business. Not being able to satisfy them is a sign of financial weakness. The primary reason behind this situation is that you are not generating sufficient income on time. You should explore ways to restore their confidence. Simple things like paying their salaries and bonuses on time ensure that they remain loyal to you.

5. Your Suppliers Are Not Giving You Enough Creditor You Are Delaying Repayments of Your Loan Instalments

Managing your debts is essential to any business. Giving and receiving credit is commonplace in business. You should adhere to the due dates while paying your suppliers as well as repaying the bank loan installments. Default, in either case, is a sign of financial trouble. Lenders condone the occasional default. However, if it becomes a regular feature, the situation is dangerous. Such defaults affect your business loan eligibility. It hurts your credit scores as well.

Prompt corrective action can rectify the situation from ballooning into a dangerous one. An excellent option to explore is a Business Loan to tide over the financial crisis.