Financial worries are ever-present in business, whether it’s constantly dropping revenues or significantly increasing debt. But diagnosing your business’ financial health and detecting the proverbial kinks in its cash flow isn’t that simple or straightforward. To help you determine whether or not your business is taking in water, here are four telltale signs.
Lopsided Cash Flow
As the old adage goes, “cash is king.” A balanced cash flow where enough money is coming in to cover your expenses is essential to keep your business up and running. Unfortunately, this flow is easy to break, particularly for small businesses that do not have investor backing or a war chest they can tap into whenever a big customer can’t pay in time. You may get away with negative cash flow for a bit, but not having positive cash flow year after year can push a business into bankruptcy.
Growing Creditor Pressures
Creditors tend to be less patient about getting paid back if and when they smell financial catastrophe brewing. If you spend more than you make in your business, you may end up being forced to put off invoices for the meantime. Doing so can result in sour relations and erosion of trust with your creditors.
Unless you run a sole proprietor business, employees are an important part of day-to-day operations. Any issues with your staffing can cripple your business’ growth. Continuously losing your employees can also lower workforce morale, curb productivity, and increase rehiring and retraining expenses. Some apparent signs of financial hardship related to your labor force include mass layoffs, cutback in employee insurance benefits, and inability to give out year-end bonuses.
Frequent Need to Refinance
Refinancing is a legitimate tool that entrepreneurs use to free up capital that’s tied to a business’ assets by borrowing the cash with the asset’s value held as collateral. While refinancing in itself isn’t enough to cause concern, the frequent need to refinance over a relatively short period of time can be alarming.
If you observe one or more of these red flags, the next step is to sit down with your team, do the calculations, and confirm that there is a financial gap that needs to be addressed immediately. You can also bring in a financial advisor and business strategist to help realign your business’ operations and objectives.