5 warning signs that your business is failing

Do you recognise any of these symptoms of a sick business? Steve Benger, CEO of Accelerus, takes a look at how you can spot them before it is too late.

In ancient Chinese medicine, looking into a patient’s eyes provided an invaluable diagnostic tool. It was truly a window into the soul and provided an early warning sign for impending health issues. It is a technique widely used today by opticians who can now diagnose the onset of diabetes, anaemia and high blood pressure among many other conditions.

bad business failure

But what about business? Can you stare into the face of a business and foresee trouble ahead?

The answer, I believe, is yes. I must have met with more than 1,000 different businesses in my career and in almost every case it has been possible to sense trouble within the first 30 minutes of interviewing the leadership.

Here are my five tell-tale signs of a business in distress:

1) Absent leaders

If the founder or senior directors are increasingly spending time away from the office, taking a back-seat, taking on voluntary work or spending a disproportionate amount of time visiting small regional outposts, this is displacement therapy. It is a sign that they no longer want to connect with the business, either because they can’t face the problems or they have lost interest or even complacent. Whatever the reason, it’s a big warning sign.

2) A silent office

A silent office where no one talks is a dangerous place. While getting your head down is a great way of cracking through work, having little connection with the team around you reveals a lack of engagement, which is bad for business. The best results come from a collective effort where teams, not individuals tackle tasks. If your office has fallen silent, it can often mean low-morale, poor communication, and poor leadership, which are all signs of a troubled business.

3) Competing on price

A sure-fire symptom of a failing business is a decision to chase volume and compete on price alone. Cutting your prices to win customers is a recipe for disaster because you will never be able to deliver the quality of service or the cost levels needed to sustain your business. You may gain customers but they will inevitably be unprofitable ones.

4) Over promotion

If the graduate who joined the business six months ago is suddenly promoted to regional manager or the best sales-person suddenly becomes the sales and marketing director, it’s a sign of brewing trouble. Unless the person in question is a true genius or they are clearly able to step into leadership roles for the future rather than for today, the chances are the promotion(s) are an attempt to save money by paying a junior salary for a senior role or fear of giving perceived ‘bad news’ to reliable people. Most of the businesses I have been involved with have over-promoted a number of people who, whilst hard and conscientious workers, are the main limitation to growing a business successfully and sustainably.

5) Cash not flowing

While prudent cash flow management is a good thing, failing to pay your bills regularly is not. If your business cannot pay its bills when they fall due and is constantly fending off angry creditors, then there is a more fundamental problem and urgent action needs to be taken. Don’t forget a creditor owed more than £750 for longer than 21 days can apply to have your business wound up. Short-term cash management is largely about ensuring you get paid before you have to pay out, but if the bills are coming in quicker than they are going out alarm bells should be deafening. This indicates a more fundamental problem, which requires a review of customers, products, commercial, operations and working capital. In essence, a top to bottom review focused on determining how to achieve a profitable business which creates cash rather than squeezing everything and burying your head in the sand.

If your business displays any of these characteristics, you need to tackle them now before it’s too late. Individually, they are all surmountable but collectively they are bad news.