How to Tell if Your Business Is in Crisis

1. There is an increase in late payments and penalty fees.

An influx of overdue payments is a sure sign that your business may be in crisis. Whether payment is due to suppliers, tax agencies, or financial institutions, failure to pay on schedule subjects businesses to various penalties and can often lead to inquiry about the current state of affairs.

2. Payroll commitments are not being met.

Often, when business isn’t going well, payroll issues will arise. Bi-weekly payments can turn into monthly payments or skipped payments altogether. If you notice a sudden change in the payroll process—especially without notice—it may be time to look deeper into how the business is doing.

3. There is a steady decrease in sales.

A business begins to lose profit when there is a decrease in sales. And though earnings tend to fluctuate throughout a company’s life cycle, it’s important to pay attention to a steady decline in sales that doesn’t seem to rebound. A perpetual loss of capital is indicative of a crisis and requires immediate attention.

4. Prices are regularly being cut to stimulate sales.

Experienced business managers know that constantly cutting prices is not only bad for business, but often a sign that business is already bad. Periodic price reductions throughout the year are a normal and orchestrated business strategy; however, when prices are being slashed repeatedly in order to encourage sales, the business is likely in trouble.

5. Banks deny your request for a business loan.

Another sign that your business may be in crisis is if a bank won’t give you a business loan. Lack of cash flow, insufficient credit and collateral, and a poor debt-to-income ratio are all reasons a bank can deny your request. Though loan denial can also be attributed to economic concerns or a weakening industry, it’s important to look at your business operations if you do not receive the financial assistance you’re seeking.

6. Employees are being terminated or having their hours reduced.

A sudden reduction in the workforce is one of the most telling signs that your business is in crisis. When costs need to be cut, employees are often laid off or scheduled to work fewer hours. If your business is in a position that makes cutting costs a necessity, there’s a good chance it is facing some sort of financial dilemma.