How to Spot Signs of Trouble in Your Small Business

It doesn’t happen overnight. Learn the signs of decline some entrepreneurs miss, and when to seek help.
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Don’t miss these common warning signs your small business might be in trouble. (Photo: fizkes/Shutterstock)

It’s one of the toughest and most debilitating challenges business owners face, but it’s one that begs to be acknowledged: Your small business could be in danger of failing.

But you know it didn’t happen overnight. In many cases, you’re missing signs of gradual decline that had been occurring and worsening over months or even years. One reason for this is that you might be unaware of the symptoms of failing businesses.

Steve McMeechan, a strategic marketing and communications specialist for Capstone Financial Planning, outlined five signs your business is starting to fail, and how to resolve them.

Your financial stress is at an all-time high

Every business encounters periods of financial strain, but it’s knowing the difference between a temporary squeeze and a burgeoning cash flow crisis that can make or break your business.

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Analyzing your business and competitors can help to reduce the risk of your business failing.” – Steven McMeechan (Photo: Steven McMeechan)

“Burgeoning debt is a pretty clear sign that your revenue and cash flow management isn’t as great as what it should be, especially if you’ve previously had great years where your business was in the black for a long while,” McMeechan said.

Now is the time to work on improving income, rather than increasing spending. He recommends a full analysis of your product and service portfolio, including a blunt assessment of items that are no longer profitable.

Related: What’s the Right Debt Ratio for Your Small Business?

Your sales are dropping

If you’re experiencing a decrease in sales that goes beyond the normal ebbs and flows of your business – a drop that lasts a year or more, for example – it’s time to reassess your business model. There are four main questions to ask as you do this:

  • Are the products you’re selling no longer of interest or obsolete?
  • Are your prices too high compared to your competitors?
  • Are you marketing yourself appropriately to the right target customer?
  • Is your business as appealing to your customers as you think?

“Analyzing your business and competitors can help to reduce the risk of your business failing or running off track for too long when sales have dropped for an extended period,” McMeechan advised.

You’ve underestimated technology

In a relatively short time, the explosion of the internet and widespread use of smartphones and tablets has fundamentally changed the way people shop. If you haven’t been keeping up with these changes or are intimidated by modern technology, your business is likely to be left in the dust.

“Do you have a reliable and effective online ordering system or a Client Relationship Management (CRM) system to manage your company’s engagement with clients?” McMeechan said. “Do you have secure payment gateways to facilitate financial transactions between your business, your customers and trading partners?”

Failure to keep pace with the changing purchasing behavior of consumers is a major reason many businesses fail, he said.

You’re losing too many employees

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Employee turnover could be a sign of a bigger problem. (Photo: De Repente/Shutterstock)

Many business owners believe that the problems they’re facing – decrease in sales, loss of foot traffic and overall profits, to name a few – are due to incompetent or inefficient employees. Because of this, they generally fire and replace their current employees in the hope that the “right” people will resolve those issues. The cycle continues, but the problems don’t go away.

Related: How to Write Job Postings that Attract the Right Employees

That strategy, McMeechan said, is far too short-sighted. “When employee turnover is high, it’s time to dig a little deeper to find out what’s really going on in the business,” he said. “In situations like this, it can be useful to engage an external consultant who can work with all stakeholders involved and provide an objective, impartial view without fear of upsetting the status quo.”

Your customers are noticing the downturn

It’s one thing to acknowledge, by looking at the books or witnessing the drop firsthand, that your business isn’t doing as well as it used to. But when others – customers, employees or neighboring businesses – start to notice, then you know you’re on thin ice.

The good news, McMeechan said, is that you can use this to your advantage. “If they’re a long-term customer, ask them for feedback on what they think about your business, what you could improve, and why they may be looking elsewhere for their products. In gaining this valuable feedback you could have a chance of improving your business greatly and getting it back on track again.”

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