Running a business comes with its fair share of challenges. While occasional setbacks are normal, certain obstacles can signify something far more serious — potentially leading to closure or even personal repercussions.

Recognising the early signs a company is in trouble is essential to addressing issues before they spiral out of control. This blog will explore the seven most common warning signs a company could be going under, and why taking swift action is vital for survival.

How to Spot the Warning Signs a Company is in Trouble

When running a business, it’s not always easy to spot the subtle indications that your company might be heading for trouble. However, recognising the signs a company could be going under is crucial to protecting your business, its employees, and your reputation. 

From cash flow struggles to strained relationships with creditors, there are clear warning signs that can often go unnoticed by key decision makers until it’s too late. We will walk you through the seven most common signs companies are in distress, and discuss how identifying them early can help you to take decisive action to steer your business back onto the right track. 

1. Cash Flow Problems

Cash flow is the lifeblood of any business. Therefore, a consistent shortfall in funds necessary to cover day-to-day operations is often the very first sign a company is in trouble. 

Cash flow issues can manifest in a number of ways, including when a business has difficulty paying its suppliers on time, is forced to delay wages for employees, and when it routinely maxes out credit facilities. 

Such problems can stem from factors like late payments from high-value customers, increased overheads, or declining revenue. Regardless of the cause, a failure to resolve problems of cash flow promptly can quickly escalate, putting your company on the path to insolvency. 

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2. Increasing Debt Levels

While taking on debt can fuel business growth, excessive or unmanageable debt is a key indicator of companies in distress. Some warning signs include:

  • A reliance on short-term loans in order to cover ongoing expenses 
  • Overwhelming monthly interest payments that cut into profitability 
  • Persistent chasing from creditors about overdue payments

While debt may be useful in certain scenarios, when allowed to fester and become excessive it will erode financial stability, making it much more difficult to secure funding and keep the business afloat. 

3. Declining Revenue and Sales

A sustained drop in either revenue or sales is another major sign a company could be going under. This decline can result from factors such as increased competition within an industry, a loss of key customers or contracts, and changes in market trends or consumer behaviour.

Additionally, failing to adapt to changes in the market’s conditions will often exacerbate these issues. Without intervention, any major drop in revenue can quickly lead to financial strain which could, in turn, hinder a firm’s ability to invest in potential growth opportunities.

4. High Employee Turnover

Companies in distress will often find it increasingly difficult to retain its staff the longer the problem persists. Common reasons employees will give when leaving a business in trouble include: 

  • Poor morale within the workplace
  • Uncertainty over the future of the company 
  • An inability to offer competitive salaries or benefits compared to other businesses

When skilled employees leave a business, productivity will naturally suffer as a result, and the remaining workforce will likely feel overburdened and their morale will be worsened as a result. This can create a vicious cycle that will continue to impact company performance over time. 

5. Delayed Tax Payments

Falling behind on tax obligations is a serious sign a company is in trouble. HMRC takes late or missed payments very seriously, with potential consequences including:

Missing tax deadlines on a regular basis, or needing to negotiate time-to-pay arrangements with HMRC can be a major indication of underlying financial issues that will need urgent action. 

6. Dependence on One Customer or Contract

While not necessarily one of the signs of a company going under, an over-reliance on one single customer or contract will pose significant risks — leaving your business in a constant state of uncertainty as there is a lingering possibility that a majority of your income could go elsewhere. 

If this fear were to become reality, and your major customer were to reduce orders, delay payments, end the relationship altogether, or go out of business, then your company would likely struggle to recover. 

The best method of avoiding this scenario in the first place is to diversify where possible, this will ensure long-term stability. 

7. Deteriorating Relationships with Creditors and Suppliers

A pattern of breakdowns in relationships with creditors and suppliers is often a symptom of some deeper issues for a company. Warning signs include when a supplier refuses to extend credit or actively halts deliveries, or frequent disputes over unpaid invoices. 

Suppliers and creditors are often the first to sense when companies are in distress. Their lack of confidence can quickly lead to operational challenges, escalating your financial difficulties.

Is Your Business in Trouble? What to Do Next

If you’ve spotted any of the warning signs that your company could be going under, the key to turning things around is to act quickly, Ignoring the problem will only escalate the situation and cause further issues down the line. 

Here are a few immediate steps you should consider to turn things around: 

Why Acting Early Matters

The good news for company directors is that the earlier you recognise these warning signs your company is going under, the better chance you will have of recovering and reversing the situation. Ignoring it will only lead to further financial difficulties down the road, likely culminating in insolvency or liquidation. 

Take proactive steps to address these issues, as it will not only help to safeguard your business, but will also provide some much-needed peace of mind. 

It is therefore vital that you seek expert advice from professionals who understand and have extensive experience in the complexities of financial issues and can guide you towards recovery.

How Inquesta Can Help

At Inquesta, we specialise in helping businesses to identify and resolve the causes of financial distress. Our team of experts will work closely with you to develop tailored strategies aimed at stabilising your company and returning it to a more positive position going forwards. 

From restructuring and recovery advice, to supporting you in negotiating with creditors, we offer comprehensive solutions designed to meet your specific needs. 

Choosing Inquesta you gain:

  • Access to seasoned insolvency professionals.
  • Transparent advice free of unnecessary jargon.
  • Bespoke solutions for your issues, rather than a one-size-fits all service. 
  • A commitment to helping you and your business.

At Inquesta, we understand that seeking help can feel daunting. However, taking that first ever-important step can make all the difference. So if you recognise any of the signs your company could be going under listed in this blog, don’t hesitate to reach out. 

Final Thoughts

Spotting the signs of a business in trouble is the first step towards recovery. By addressing issues such as cash flow problems, increased levels of debt, and declining revenue as early as possible, you will give your business the best possible chance of turning things around and recovering. 

If you’re unsure where to start, or need further guidance on the matter, Inquesta is here to help. Contact us today and explore how we can assist you in navigating whatever challenging times you’re currently dealing with. Secure your company’s future today with Inquesta. 

Remember, it’s never too late to take action, but the sooner you do act, the more options you will have available. Get in touch now.