4 Signs That Your Business Is on the Brink of Bankruptcy 1

4 Signs That Your Business Is on the Brink of Bankruptcy

Every business is experiencing ups and downs, but not all companies are able to cope with the crisis. About 30% of new businesses experience a bankruptcy and fail during the first two years and 50% during the first five-year period. Being able to notice warning signs in time can help an entrepreneur save the whole company. 

There are 4 main signs indicating that the company is on the brink of failure. Moreover, this can be both temporary difficulties or serious problems that can ruin the entire business.

1. Cash shortage

For a business, the ability to create and increase cash flow plays an important role. Therefore, the reduction in financial income is one of the indisputable signs that the company is in trouble and on the brink of bankruptcy. This primarily relates to organizations that are not associated with a seasonal business, where a drop in income in certain periods is considered normal.

Bankruptcy is when an organisation is unable to honour its financial obligations or make payment to its creditors.

Speaking about a temporary lack of funds, experts often use the term “cash gap”. It occurs at that moment when the company is not able to pay production costs on time. A cash gap occurs in cases where the timing of financial income in the organization does not match the timing of payments. Most often this occurs for the following reasons: 

  • poor cash flow strategy in the company 
  • unprofitable transactions and investments 
  • unplanned expenses
  • lack of a reserve fund 
  • unreasoned actions to bridge the cash gap

To solve the problem of the cash gap, it is recommended to regularly review the company’s balance sheet and comparing current financials with the previous years. To eliminate the cash gap, experts advise carefully planning the budget for expenses, payments, and cash receipts.

A cash shortage is among the leading causes of bankruptcy for businesses

Cash shortage in business may result in bankruptcy
Cash shortage in business may result in bankruptcy (photo credit: shopkeep)

In addition, it is necessary to draw up the sequence of payments and strictly adhere to the payment calendar and cash plan. A well-functioning cash flow planning system helps the company quickly find money sources to cover cash gaps.

If it is difficult for you to independently control financial flows, then make accounting services responsible for this. Thus, you may prevent unpleasant financial surprises in the future.

2. Dismissal of the best employees

Dismissing employees is one of the main warning signals that your company is in trouble. Psychologically depressed or unmotivated employees are an indicator that your company experiencing problems. Subordinates may be unhappy for two reasons: either they receive a low salary, or management is not able to maintain a healthy working environment. 

If the company is deprived of a pleasant and liberating atmosphere, then employees will gradually leave it. The situation when the best specialists leave your company may be especially dangerous. 

3. Loss of market part

Maintaining your market position is the key to profitability. About 50% of companies fail when they lose their place on the market. Such a loss often associated with the company’s inability to compete and indicates the predicament of the company, which is at the risk of failure.

Loss of market position can cause bankruptcy - Newslibre
Loss of market position often results in bankruptcy (image credit: Insurance times)

4. Clients loss

If customers constantly leave you and you cannot attract new ones, then the decline in profits is just around the corner. This situation can be caused by the following reasons: 

  • the company does not meet the expectations of customers
  • competitors lure clients with better offers
  • the organization poorly serve its customers
  • your product or service is no longer relevant

When losing customers, it is recommended to identify the cause of the problem as fast as possible. An organization can keep consumers for a short period through a marketing campaign or through the introduction of loyalty programs.

However, such methods are ineffective in the long run. You need to understand why customers are unsatisfied with your goods or service and eliminate the root cause of the problem otherwise your business is on the path to bankruptcy.


Interesting read: Depreciation: The Cancer for Cars

4 Signs That Your Business Is on the Brink of Bankruptcy 2

Author: Amelia Grant

Amelia Grant is a journalist and blogger that believes information is a great force that is able to change people’s lives for the better. She has a strong passion for sharing useful and important things about health self-care, wellness and other advice that may be helpful for people. She is an enthusiast of a healthy lifestyle. You can check out her website for daily updates at Amelia’s Blog.


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