According to Mark Hoppe, managing director, ANZ, of credit insurance and debt collection agency Atradius, there are 10 common warning signs that a business may be in trouble.
However, he said these are not guaranteed markers that a business is going to fold, and as such context is crucial in determining the relevance of some or all of these indicators.
- Too much debt“If a company’s operations are mostly funded by creditors instead of the business owners, and it may have some difficulty servicing that debt, then it is under stress and may not be a valuable business partner,” said Mr Hoppe.
- OverexpansionAccording to Mr Hoppe, overexpansion can quickly lead to cash flow troubles, even for experienced operators. This then leaves them running the risk of taking on large amounts of debt in a bid to keep the business going.
- Lack of clarity
Clarity around what the business is trying to achieve is critical to its ongoing success.“If it’s not clear what the business does or how it generates cash, there is likely to be a significant amount of risk,” said Mr Hoppe.“These types of businesses should be avoided.”
- Profit warningsProfit warnings are most commonly the domain of listed companies. According to Mr Hoppe, they are “the clearest sign that a company won’t meet its earning expectations and could be a signal that the business may be in trouble”.
- Unstable leadershipAside from finances, instability among a business’ management team and senior employees can indicate problems. Beware of a significant turnover among senior member of staff and management.
To find out more about other signs of business failure, click the link below: