6 Signs Your Business is About to Hit the Wall

Do any of these warning signs sound familiar? Knowing what to look out for can help save your business from going under.
December 06, 2012

The later the phone call, the worse the news. And for me, those calls usually happen around 10 p.m. My office phone rings and I know who's on the other end of the line before I pick it up. It’s an entrepreneur in desperation.

Their business is going under. They either didn’t pay attention to the signs, or they didn’t know the signs. For new entrepreneurs it’s often a combination of both. There are dozens of indicators that a business is about to hit the wall; fail to see them and you might find yourself out of business and working for someone else again (not that!).

To avoid this fate, and keep your business going, pay attention to the following six indicators.

1. Your modified “Cash Ratio” drops below 0.2. Cash Ratio is your cash on hand divided by your total liabilities due in the next 60 days. If the ratio drops below 0.2, that means you have 5 times immediate debt to cash. That is a big pending problem. If you don’t understand Cash Ratio at all, or have never figured it out and don’t know how to do it, that’s an even bigger problem.

2. Your competition went out of business. Sometimes competitors fail because they ran their business poorly, or someone embezzled them into oblivion. Other times competitors start going out of business because the industry is drying up. Don’t celebrate until you find out which it is. If you’re watching competitors dropping around you like flies, you need to re-evaluate how you’re doing before you become just another casualty.

3. Your employees are disgruntled all the time, not just after a long party weekend. They may not like your new “show up to work on time and sober policy,” or they hate that they can’t make every day casual Friday. If you’ve recently cut back on perks, or started snapping at them because you’re stressed, you may have kicked off a domino. Disgruntled employees means you’ve triggered a sequence of events that might not turn out well for you.

Whatever has them feeling like making a YouTube video of their cubicle mate doing horrific things in their workspace, you need to be paying attention and turning it around. Employees are the face of the company. If they don’t follow policy or intentionally try to hurt the company, you and your company are in trouble.

4. You haven’t gone on vacation. Sitting in traffic, thinking about the beach and promising your family you’ll all “get away soon” doesn’t count. If you can’t take a break to do more than go to the bathroom or eat lunch someplace besides your desk, then the business is fully dependent on you. If you get hurt or are forced to take time off, it is just a matter of time before the company will hit the wall.

5. Your credit card limits are reduced or bank loans get called. This is a sure sign someone with way more financial savvy than you is seeing a financial tsunami on your horizon. Signs of financial weakness are more evident to the professionals who are in the business of protecting money than they are to you. In this same process, if the outstanding balances on your line of credit are hovering closer to the limits than away from them, that’s also a sign you’re not making enough money to stay in business.

6. Clients are taking longer to pay bills. If your clients are in trouble, you're in trouble. Cash is king and if your king is panhandling at the bank to make bills or payroll, then your kingdom is about to fall.

No one indicator is a reason to panic—worry a lot maybe, but not panic. But if you have two or more of these things happening, you better find my phone number right now.

Read more articles from Mike Michalowicz.

Mike Michalowicz is the CEO of Provendus Group, a business growth consulting group that helps companies whose growth has plateaued to move forward again. Michalowicz is the author of The Pumpkin Plan and the business cult classic, The Toilet Paper Entrepreneur.

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