In many instances when businesses have faced financial stress, the business owner was not aware of the problems or avoided the signs until the financial stress was too large to manage. We have highlighted 5 warning signs that your business is facing financial stress so that you can keep on top of your business finances and continue the success of your business. If your business is showing any of these financial stress warning signs, we recommend immediately outsourcing your financial management to a small business accountant. SureBooks is a small business accountant you can trust to get your business back to financial health.
5 Warning Signs Your Business is in Financial Stress:
We have outlined 5 warning signs that your business is facing financial stress.
1) Monthly Overheads in Arrears:
No matter the industry, every business will have monthly overhead expenses. Most businesses will have rent, utilities, employee payroll, taxes, internet costs, phone bills, and bank charges as a few of the common monthly overhead expenses. The business will need to be operating at an income rate that ensures these monthly overhead expenses are covered to continue operations.
When a business’s monthly overhead expenses are in arrears, it means that the business is behind on paying its fixed costs. The consequences can range from being cut-off from your electricity and water supply until you catch up on your payments to your employees staying away from your business until they have been paid; all of which will severely impair your business operations. We have outlined three of the various ways that your business can fall behind in paying the monthly fixed costs.
Accounting Mistakes: In most cases, being behind in monthly overhead expenses can be pinned down to a simple accounting mistake. While this is inconvenient, this is an easily rectified problem that can be solved by using better financial management.
Lack of Income: In more serious cases, being unable to pay your business’s monthly overhead expenses is due to insufficient revenue in that month. In most instances, you can wager later payments with your overhead expenses. If being behind in your monthly expense payments becomes a consistent problem, your business will face severe ramifications.
No Emergency Fund: Not having a business emergency fund can be catastrophic, especially when you are facing financial stress. If your business does not have an emergency fund to fall back on in times of low income, your monthly overheads can become a huge financial strain.
The last thing any business needs is to be receiving overdue accounts letters, which can add to your overall stress and impair your ability to successfully run your business. Once your business starts missing your monthly overhead payments, the best step to take is to acknowledge the financial strain in your business and take rectifying actions.
2) Unable to Take a Salary:
Business owners will take a salary from their business as remuneration for the dedication, hard work, and long hours that go into ensuring the business is operating successfully. As the business owner, you get to decide how much of the profit goes back into the business and how much can be allocated to your salary. When your business is running at a loss or just breaking even, this generally means that the business owner is unable to take a salary.
The inability to take a salary is often a signifier of financial problems in your business. We have outlined a few possible causes behind being unable to take a salary.
Insufficient Sales: Sales are naturally going to fluctuate from month to month, but if your business is consistently facing insufficient sales, there may be larger problems to face. Your marketing team may not be performing and ensuring that your product or service is known, a competitor may have created a better or cheaper alternative to your product without your knowledge, or a change in supplier may have affected the quality of your product. The sooner the cause behind your insufficient sales is addressed, the sooner you can begin improving your business’s financial state and thus start taking a salary again.
Incorrect Pricing Scheme: Your product or service may be unique, of exceptional quality, and in high demand, but each month you are still only breaking even. This highlights a clear problem in your pricing scheme in your product or service, and your under-pricing is leading to your inability to take a salary.
Excessive Expenses: Excessive monthly overhead expenses or purchasing supplies in bulk unnecessarily will impair the financial position of your business. As your business struggles to cover the excessive expenses, you will be unable to take a salary.
Not only is being unable to take a salary a signal of financial stress in your business, but it will also start causing personal financial stress. Taking the inability of taking a salary as a warning sign of financial strain is imperative to avoid catastrophic consequences for both your business and your personal finances.
3) Major Client Loss:
Businesses work extremely hard to accrue loyal clients. Time, effort, and energy are put into producing a product or service that accurately satisfies the needs of your target clients. Additional funds are then placed in marketing the product or service, finding employees that can fulfil their duties in your business satisfactorily, and maintaining your reputation for a consistent, high-quality product or service.
A loss of a major client is a major business problem and a clear signification that your business is going to be facing financial strain. Understanding the reasoning behind why your major client has discontinued using your product or service is the first step towards understanding the problem areas in your business that are leading to financial stress.
4) Inadequate Debt Collection:
In many cases, businesses have numerous clients purchasing products or services but are still facing cash flow problems in the business. Late payments by clients are not uncommon, but if your income is continuously not being retrieved, your business will start suffering. In most cases, the late payment by clients is not due to an error on the client’s part but is being caused by slow or inefficient collection processes in your business. If your business is inadequate at collecting outstanding funds from your clients, this will quickly lead to financial stress in your business.
Inadequate debt collection is a clear sign of poor financial management, which can then be seeping into other financial areas of your business. Inadequate dept collection signifies a fundamental problem in the accounting department of your business, and this needs to be immediately addressed to prevent unmanageable financial strain.
5) Discontinued Loan Availability:
Businesses facing financial stress will often turn to banks for loans to help assist them until the business is back to being financially healthy. Relying on a loan is not always a major problem, but once your business starts becoming dependent on loans to operate, there is a high risk of serious financial strain. Once your business starts facing consistent financial stress, banks will begin to withhold the availability of loans for various reasons, such as the few we have listed below.
- High debt-to-income ratio.
- Incompatible credit scores.
- Weakening industry.
- Inconsistent cash flow.
- Lack of collateral.
All of these reasons are signifiers of financial strain in a business, and an inability to receive loans to operate can be catastrophic for the future of your business. The initial noticing of your dependency on loans as a warning sign of financial stress is important to avoid being faced with discontinued loan availability.
What to Do When Your Business is in Financial Stress:
When your business is under financial stress, ignoring any of the warning signs could place your business in a position where bankruptcy is your only option. By catching your financial problems early on, you can start implementing actions that will rectify your business’s financial position. The best step to take when faced with financial stress is to outsource your business accounting to a small business accountant.
An outsourced small business accountant will be able to step in and assess your business finances thoroughly. Whether your financial problems are being caused by insufficient monthly revenue, poor budget management, or excessive monthly overhead expenses, your small business accountant will provide you with a detailed report on your business finances and your possible problem areas.
Once there is a clear understanding of the exact causes behind the financial stress, the small business accountant can offer you professional advice on how to steer your business back to financial health. You can then make informed decisions and take reformative actions to mitigate your business’s financial stress. Partnering with a small business accountant who can efficiently and effectively assist you during your financial stress is the best way to improve your business’s financial situation.
SureBooks is a small business accountant that you can rely on to successfully guide your business out of financial stress. SureBooks offers professional small business accounting services that will be the solution to your business finance managing needs. Our years of experience and team of qualified accountants will bring back the value of your business and restore your peace of mind with our small business accounting services.
About SureBooks Small Business Accountant:
SureBooks is a small business accountant that offers accounting and payroll services. We strive to save you time, effort, and stress with our small business accounting services. When it comes to finding a small business accountant when your business is facing financial stress, SureBooks is a reputable and reliable partner.
SureBooks will provide your business with financial managerial efficiency that will ensure the successful running of your business accounts. From managing monthly overhead expenses to PAYE tax to accurate bookkeeping, SureBooks covers every accounting aspect that is critical to prevent your business from facing financial stress.
At SureBooks, we understand that numerous aspects go into running a business and that often many of these aspects need all your time and attention. SureBooks is the small business accountant that will keep up-to-date on all your business accounts for you and will consistently communicate any possible financial problems immediately so that they can be sufficiently solved before they become a financial stress.
SureBooks is here to make your business financial stress easier to manage. We offer a free consultation where we will sit and discuss your business finances and how we can assist in steering your business back to financial health. We are a small business accountant that offers personalised accounting services to ensure that your financial stresses are efficiently and timeously managed.
SureBooks is the small business accountant that will bring back stability to the management of your business finances. You can trust our accounting and payroll services, financial managerial efficiency, and professional approach to handling your business finances. With SureBooks, your business’s financial health is our top priority.
SureBooks is the small business accountant you can trust to get your business back to financial health.