5 Warning Signs a Company is in Financial Trouble


When managing a business,  volatility is inevitable – much of which is driven by external factors. However, there are several internal factors that can indicate a company is in financial trouble. 

It is crucial that business owners are aware of the signs a company is in financial trouble, so that urgent action can be taken to rectify any foreseeable issues and ensure the longevity of the business is protected.

We've prepared a list of common warning signs a company is in financial trouble.

#1. Cash flow is impacted

Cash flow represents a business’s cash inflows and outflows from operating, investing, and financing activities. Cash is the most vital resource for a business as it powers all business operations. Without generating enough cash and having cash-on-hand in due time - a business simply can’t function. Even if your other business components look healthy, if you neglect to manage your cash flow,  you mightn’t have the funds accessible at a given time to meet payment and loan deadlines. 

An inability for businesses to pay debts and bills on time is often associated with inadequate cash flow management. If this is a problem for your business, we suggest engaging an outsourced professional, who will be able to accurately assess your business's overall sustainability and utilise this to inform subsequent strategical decisions.

At Azure Group, we believe rigorous Cash flow Management is essential to business growth. Our priority is to ensure cash is coming in and going out on time by setting up a system to monitor and then increase your working capital. Azure Group’s team have a wealth of knowledge and experience when it comes to providing a detailed “what if” analysis and solutions to address shortfalls and surpluses if or when they occur. 

Related: Why Managing Cash Flow is Key to Business Success

#2. Reduced net profitability 

Dissimilarly to cash flow where the source of cash could be from either operating, financing, or investing activities, net profitability represents the amount of money that remains in a business after all expenses have been paid. Profitability is the primary goal for a business and is a primary indicator of financial health.

However, whilst profitability is important in the long-term, Cashflow is more important for a business's short term survival. This is because a business can still function with a net profit deficit if enough cash has been generated to account for imminent expenses. However, prolonged, or significant low profit margins is a warning sign a company is in financial trouble.

Related: 4 Signs your Business needs a Virtual CFO

#3. Lack of employee retention 

Employees are the most valuable resource to any business. Whilst a lack of employee retention is an unobtrusive business cost, it is also a significant one. Not only does recruiting and training staff cost money, but constant staff turnover also poses indirect costs such as low productivity and a loss of valuable time and knowledge. Establishing an inclusive and collaborative workplace culture is key to employee retention. Investing in understanding your employee’s job satisfaction and engagement factors as well as listening to employee feedback and implementing training and development programs will not only help to retain staff, but will also improve productivity, morale, and quality of work. 

Related: Our Top 5 metrics for measuring Team's Productivity

Businesses should also consider implementing an Employment Share Scheme (ESS) to incentivise employees to align their efforts to the company's success. ESS will also help to set the foundation of building teams by unifying employees that share like-minded goals. Get in touch with Azure Group's ESS experts to learn more.

#4. Changes to customer and client behaviour 

If you notice changes to your client or customer behaviour, it is crucial that you identify problems and make necessary and feasible changes to satisfy customer needs. A decrease in sales, loss of clients or increased complaints may serve as an indication that your business needs to act urgently to assess the problem and protect the reputation and financial health of a business. By consistently seeking feedback and maintaining open, transparent, and reliable communication with clients and customers, businesses can swiftly identify issues and sustain a positive relationship.

#5. Inadequate financial records 

Inadequate financial reporting poses several risks to the financial health of a business. Namely, it will be difficult to make informed and accurate strategical financial decisions and the business could run the risk of being subject to regulatory fines and reputational damage could occur.

While not all businesses partake in cash flow management, all business do have compulsory financial reporting obligations. Inadequate reporting could result in penalties, legal action, and subsequent reputational damage. It is important that businesses protect their financial health by ensuring these are completed with vigilance.

Related: Why bad Financial Record keeping means bad Business?

Outsource your Finance to Azure Group

 Azure Group provide full outsourced finance solutions, namely, outsourced payroll, outsourced bookkeeping and accounting, and outsourced CFO. We offer a holistic service to ensure that all of your accounting and finance requirements can be seamlessly fulfilled under one roof.  Azure Group uphold a reputation for being a proactive, hands-on firm that delivers smart, innovative and revolutionary services to match the demanding needs of today’s business.
Get in touch with our team to learn more about our outsourced finance services. 

Related: How to get the most out of your Accountant

Have you noticed our #FridayExpertTips... here's one that relates to #Advisory

“Delivering a consistent customer experience is essential if you want to succeed as a business. Ensure your customer service is exceptional and go the extra mile when you can. Your customers will not only remember great service, they will also more likely to refer others to you."


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About Author

Azure Group
Azure Group

Azure Group is the leading Chartered Accounting, Business Advisory and Strategic Advisory firm supporting the growth & success of fast growing entrepreneurial businesses.

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