We are all aware of the efforts involved in starting a business, securing a business location, furnishing it, staffing, marketing it, needless to say this is a huge capital investment. Once your business is “up and running” there are signs of business failure you must watch out for and avoid at all costs. Here are some of the early financial problems that are the main contributor to business failure, If you see these danger signs in your business, you need to act on them immediately.
Business failure due to high debt ratio
A sure sign of business failure and major cause of trouble is usually a high debt ratio. If you are extending too much credit to customers, or allowing extensions on payments due you could be putting your business at risk. You must be sure your debtors pay their debts on time. If you have to use working capital to pay your business debts, then your business is at risk. You must be able to control the cash flow of account receivables. Remember, you have accounts payable.
Dwindling working capital
Another cause of business failures you must watch out for is depreciating working capital. This can be the result of unnecessary expenses, too much inventory and poor cash flow management. This can be due to a high debt ratio. This will lead to a negative cash flow. Cash flow to a business is what blood is to humans. No business can survive without strong cash flow management.
Business failure due to declining Profit
Declining Profit, if not handled properly can cause business failure. Sometimes a down turn in profit margins can put your business in the red faster than you can recover. A sure way to avoid this problem is to make sure you are focused on increasing sales volume while you keep operating expenses low.
Inability to secure operational capital is another sign of business failure
If for any reason your business is unable to secure funds from financial institutions you may be heading to business failure. By avoiding the problems of high debt ratio, dwindling working capital, declining profit margins and control of daily operating expense, your business should be fine. Remember, keep the focus on sales volume, grow, grow, and grow. Success is based on the ability to generate revenue.