Five Signs That a Business is Failing : Future Strategy (2024)

Starting your own company is an exciting time, but having a great business idea doesn’t always mean long-term success, and a high risk of failure is a fact of life for all start-ups.

Sometimes, cutting your losses can be better than pumping more time and money into a failing business.

It’s no use sticking your head in the sand, and the quicker you acknowledge potential problems, the better chance you have of doing something about them before it’s too late.

Very few companies fail without warning. Here are five signs that your business could be failing or at least in serious trouble:

1. If Sales Are Low or Decreasing – It Could Be a Sign That a Business is Failing

Sales are retrospective (you only know they are low or decreasing when they have already happened). Therefore, you must look closely at forecasting and market research to achieve reliable sales forecasts.

Here are some possible reasons for low or decreasing sales:

• High competition – new companies are entering the market which offer a similar product or service to your business.
• Not selling via an appropriate distribution channel.
• No repeat purchases or little customer loyalty.
• External impacts – maybe the sales are low due to influences outside your control. Has your company adapted to these changes? Can your customers still afford the product or service?

2. Communication is Breaking Down

Employees will often have little or no idea that a business is in danger, and keeping them in the dark could have a hugely negative effect.

Communication is about building relationships – if they break down, your business could be in serious trouble. After all, if you have unhappy employees, it’s sure to filter through to your customers.

Here are some ways a company can be affected by poor communication:

• A business may inadvertently disregard staff “lower” in the hierarchy who are face-to-face with your customers – remember, these people are in direct contact with the customer to deal with what they want!
• Use of jargon etc., may not be understood (this depends on the type of business).
• Failure to use technology appropriately.
• Directors withhold information and don’t inform staff – clarity is crucial.

3. High Employee Turnover

Sometimes, employees will realise or identify a problem before the directors. It could be something as obvious as not being paid or more subtle, like no longer believing in the company.

Here are some negative impacts of poor employee morale and, in turn, a high turnover of staff:

• High recruitment and selection costs- an Oxford Economics report revealed that replacing a staff member costs an employer £30,614 per employee. The two main factors that make up this cost are the cost of lost output while a replacement employee gets up to speed and the logistical cost of recruiting and absorbing a new worker.
• Loss of talent and successors in the business.
• Other employees may be reluctant to work for you.
• Reduces productivity and efficiency within the business.

4. There’s Nothing Unique About Your Company

Your business needs to stand out from its competitors, so maintaining a Unique Selling Point (USP) is critical. However, perhaps what made your company unique in the first place is no longer applicable.

Here are some factors that could affect your business:

• Your company doesn’t listen to customers and their changing wants and needs.
• Your business has not found or may have lost its gap in the market.
• You are biased towards the business, and optimistic things will turn around. A forward-thinking and evolving mindset is vital.
• No demand for the product or service (competition may be too fierce).
• Your product or service is no longer priced correctly.

5. You Have Serious Cash Flow Problems

Cash flow is the net amount of money transferred in and out of a business and is crucial to its success.

Problems with cash flow often originate from bad debts (those which can’t be recovered).

Here are signs that you may have cash flow problems:

• You cannot pay bills or any other unexpected sums as they come in – this results in borrowing and creates more debt and liquidity problems.
• Cash is king – and very important in the short term. The business could be feasible and profitable in the long term but cannot function without cash.
• If you miss any bills (or have to delay them), this could cause future credit problems, impacting relationships.

Final Thoughts on Signs a Company is Failing

If you are seeing ominous signs and think that your business might is failing, the sooner you act, the better.

You either need to figure out how to rescue it or close it down safely with as little cost and stress as possible.

Please get in touch with the Future Strategy team today if you think you might need to close down a limited company.