Many insolvent businesses are guilty of sleepwalking from financial strength to financial distress, particularly when times are tough.

There are almost always signs of trouble during a crisis, but business owners can’t recognise them, or they choose to ignore them and hope for the best.

Umbrella Insolvency Licensed Insolvency Practitioner Tom Fox sets out five of the most common warning signs for struggling businesses below.

1. Cash flow problems

Everybody knows that cash is king. Even if a business appears successful, things can quickly unravel if there’s not enough cash on hand to pay suppliers, employees and HMRC.

Every business struggles with cash flow from time to time. However, if cash flow is a consistent concern, it could be a sign of more serious trouble in your business.

You can guard against cash flow problems by paying close attention to what’s coming in and going out. If your company is consistently spending more than it earns, it’s only a matter of time before you run into problems.

2. Late payments

Whether it’s customers paying late or you missing payment deadlines, late payments are never a good sign.

When customers aren’t paying you on time, it can have a serious impact on cash flow. If you start to make a habit of paying late then suppliers may cut you off, which can have even more serious consequences.

Either way, if you notice payment days increasing, you need to figure out what’s causing the problem as soon as possible.

3. Excessive and expensive borrowing

Borrowing can be a good thing. If you’re looking to fund growth and expansion it can be a sign of financial health. But when you start borrowing to cover your costs, that can be a sign of danger.

You may also notice that lenders quoting higher rates of interest than before.

This could reflect broad shifts in the market (like a higher Bank of England base rate), but it may also be a sign that your business is a riskier bet for lenders.

4. Trading changes

All sorts of trading changes can affect your business negatively. Orders may slow down, you might lose a major client, or margins could start to drop.

It’s important you analyse the cause of any changes. Ask are any changes likely to be temporary or permanent? And will the business be able to cope in the long term?

If changes aren’t sustainable then you might need to make changes to help your business survive.

5. Low morale

Owners, managers and other employees have a keen sense for when things aren’t going well and low morale can spread quickly through a workplace.

Unfortunately, this can make existing problems worse, especially if key employees start to leave the business.

Of course, there are things that managers can do to improve morale. And the best leaders can navigate these tricky situations to keep everyone on side.

Have you noticed any of these early warning signs in your business? Don’t delay, speak to Tom for confidential advice today. Call: 0800 611 8888.