Since the Great Recession in 2008, business owners have been hit with alarming bankruptcy rates across the United States. The inability to build a sustainable business can leave many entrepreneurs feeling lost and hopeless. However, there are several warning signs that you should be watching if you want to avoid slipping into a financial crash! You do not need to be an accounting or financial management expert for these signs to appear on your doorstep. Many of them are very easy to spot.
Before you go too deep into your next business campaign, ensure you have the finances and marketing plans to back them up. Paying attention to each warning sign before it becomes a significant issue can make all the difference between having a successful business and losing clients daily. The warning signs your company is heading for bankruptcy are many. Here are several common signs your business is headed for financial trouble:
Inability to Expand the Services you Offer
Every growing business keeps on expanding every day. If a client of yours has been coming back regularly, they may be willing to pay more for new services or products than they would be spending on other services offered by other companies. If you provide services or products from several different companies in your area, then there is a good chance the client would instead shop around for the best deals and services! Therefore, when you notice your business is not growing, you need to know this might be a sign your business is headed for bankruptcy.
Too Many Clients and Not Enough Staff
If you cannot take on another client or even help out a current client because of a lack of staff and resources, it is time to grow your company or let go of some clients. It is easy to stick in a challenging financial situation when you have too many clients and not enough employees. So, when you notice this in your business, you can avoid it by hiring more employees as early as possible.
Insufficient Cash Flow
It is essential to check if your business has the sufficient cash flow to stay afloat should anything go wrong. For example, a business needs to pay its staff on time so they do not get frustrated and leave the company. It also needs enough money to cover its other expenses, such as electricity bills or rent.
However, cash flow is unpredictable and challenging to manage due to bad weather that may affect sales. So, it is best to check the cash flow forecast, such as checking if the business will have enough money in a few months and find out when this may become a problem.
This can be done with a financial forecast or cash flow analysis, which will display future profits and expenses. These forecasts and analyses can help you understand which areas of your business to concentrate on and when you should start to take action. This can be done by analyzing how much profit each month becomes, so you know how much money is left for expenses.
If cash flow is a problem, you must understand why this is the case. It can be a problem caused by high debts, or you do not have many customers. It could even be that you are spending more money than you make, which will soon add up. One way to rectify this problem is by cutting down on your costs so that your profits become larger and therefore, the cash flows are higher. To do this, you may consider reducing your staff or changing material suppliers to save money. If the situation gets out of hand, then it may be necessary for you to consider fundraising.
Cutting your debts will help you with cash flow, reduce stress, and make it easier to focus on your business. However, do not reduce your debt payments too much, or you may get into more trouble. It is best to find a way where you can pay off the debt quickly but without getting into more debt. If you are having trouble paying off your debts, then it is best to contact a lender and explain the situation so they can come up with a solution.
Any business with cash flow problems needs to implement its plan of action by effectively managing income and expenditure. This will ensure that the debts are paid on time, and any other expenses are covered.
Lack of Profits
Every business focuses on maximizing its profits. A few entrepreneurs are deciding to stop the grind and take a break, so they can spend some time with their families or recover from what has been a long year. Many startups have been doing this lately as the economy does not seem strong enough to keep them from taking vacations. But what is happening if your company is in trouble because it is not turning a profit?
It might be time for you and your company to realize that profits might be scarce. However, that does not mean that everything is lost. This post will go over four steps on how to use those small profits towards developing new products, improving the services offered by the business, and turning those weak sales numbers into something much more beneficial for shareholders. Lack of profits is a key sign your business is headed to bankruptcy.
Excess Debts
The debt shows the company is over-leveraged, so it is probably headed for bankruptcy. Debt is an excellent measure of how much "leverage" a company has. A high debt load usually indicates that the company is over-leveraged. Its business prospects are not excellent because it cannot generate enough cash to support such high debt levels. One of the most important signals that a company is headed for bankruptcy comes from its level of indebtedness, or leverage, as we call it in the Wall Street world.
In the early stages of going public, a company has no debt but is essentially a start-up since it has no credit and little cash to finance its operations. When a company goes public, it starts with relatively little debt (in the form of retained earnings) because it has not begun operations yet. Thus, when the company's stock begins trading on the open market, its stock price and its shares of retained earnings are inversely related.
This means that as the company issues new shares to pay for its initial public offering, retained earnings decrease because they are being used to pay for those new shares. If you notice many debts in your business, you want to speak with your bankruptcy attorney to help determine whether your firm is headed bankrupt.
Increases in Operating Expenses Like Rent, Utilities, Supplies, or Materials
If your company’s operating expenses are rising and you do not know why it could be a sign of impending bankruptcy. This is because when a company starts incurring increased costs in day-to-day business operations, they often reach the point where they can no longer maintain their current debt payments while continuing to meet their obligations to vendors and employees.
When this happens, the business will likely generate limited profits and collapse. Therefore, you want to speak with a bankruptcy expert whenever you notice a trend in your business. Our experts are always available to help you continue to make huge profits in your business. Lastly, we will offer some advice on how you might investigate why your company's operating expenses are rising so quickly before it leads to bankruptcy.
High Employee Turnover
If you have employees quitting every week or even more, you should look for a way to reduce the supply of workers and bring in loyal and consistent ones. The only way to survive as a business is by creating a sense of stability for your customers and employees. You can seek advice from professional business experts and bankruptcy attorneys. They will help you determine the root causes of the high number of employees quitting your business and guide you on what to do next.
Outdated Software and Equipment
Another critical sign your business is headed bankrupt is using outdated types of equipment and software. This is one of the most common warning signs that bankruptcy is around the corner. You need to update your ways of doing things for clients. Not everyone has the same idea about how a company should run. Therefore, you must provide information in an easy-to-understand format that everyone can easily understand. Otherwise, your business is on the verge of collapsing. Seek legal advice from business experts and bankruptcy lawyers.
Foreclosure or Eviction from Business Premises
The business owner may be involved in a legal proceeding and unable to pay rent. A business has overstaffed itself, leading to increased costs with no corresponding increase in revenue. The property is being used for commercial purposes, which leads to higher prices than residential properties would command. The property was purchased or mortgaged at an inflated price. So, the price cannot be supported by the income from the operation of the business.
Declining demand for the goods or services the company offers means it is not getting enough revenue from its operations to keep up with its existing debt payments. The company is facing a severe cash-flow problem and cannot afford additional debt payments on top of what it owes for its existing debts. So, when you notice eviction or foreclosure of your business premise, you should understand your business is at the top level of bankruptcy. Ensure you speak with a bankruptcy attorney to help solve the problem as soon as possible.
Legal Actions
Has your business been involved in a legal action either as a defendant or plaintiff? You require the legal help of well-skilled attorneys. Attorneys are legal and expensive actions of any kind and help you return your business to the top. You should resolve your issues as early as possible to avoid the court freezing your assets. If you do not seek legal help, you might find your business working for nonprofitable purposes.
Unpaid Sales, Payroll, or Other “Trust Taxes”
Many people know that the IRS will come after you if you operate a business without paying your taxes. But there is another type of financial obligation that may go unnoticed: Trust Fund Taxes. Trust fund taxes are withheld from employees' paychecks to fund Social Security and Medicare.
The taxes pay for the retirement benefits of employees or their survivors if the employee dies before retirement age or disability benefits for those who cannot work in their jobs anymore because of an illness or injury. When an employer owes a person money for these taxes, it is called an "under-withholding." Under-withholding does not just happen with payroll taxes but also with income tax withholding.
A better reason for a supplier to reject materials or supplies is that he already has enough to provide products and services for his customers or that he's starting to see changes in the economic environment of the area in which his company is located. When a company begins to use fewer materials and supplies, the company will start planning ways to use fewer materials and supplies.
In this crippling economy, it is not uncommon for businesses to have trouble with their suppliers — but if the supplier refuses material or supplies in the first place, that can spell disaster for your operation. Therefore, when you notice this in your business, you want to know the company is headed bankrupt. So, you want to react as soon as possible. Start by seeking legal advice from experts and a bankruptcy attorney. They will help you go back to your better ways.
Contact a Sacramento Bankruptcy Attorney Near Me
As with many problems in life, the earlier you detect and handle them, the better. A business failure may be the result of numerous cuts. Like a puncture in your car, the problem will not grow better on its own. Turning the business around will take money, knowledge, and time. You want to note that bankruptcy is not inevitable. You want to seek help from professionals to help you identify the issue in your business and correct it while you still have resources.
At Sacramento Bankruptcy Lawyer, our experts have helped many entrepreneurs turn their collapsing businesses into huge profit-making companies. If you are in or around Sacramento, CA, call our experts as soon as possible. Contact us today at 916-800-7690, and we will help you turn your business into a success.
