17/06/2016 8:26 AM IST | Updated 15/07/2016 8:27 AM IST

5 Signs That Your Business Could Be Heading For A Bust

right and wrong
triloks via Getty Images
right and wrong

Downturns are never instant. There will be many hints before the actual bust and being mindful of what these are can spare a business's life. Ironically, employees often catch on that a business is in trouble before the owner does. CEOs and entrepreneurs are often so enthusiastic and passionate about their work that they fall prey to false assumptions and an unrealistic mindset. For your business to succeed, the first step is to remove your blinkers. Sometimes, being realistic is associated with identifying and understanding the warning signs of a failing business seriously rather than holding hope.

Here are five factors that could mean an impending downturn for your business.

1. Inability to innovate

Something new, something different, something creative -- these are what customers are always looking for. Variety adds spice to life but here it adds stars to the company's life. Now, here's the big question: When was the last time your company presented a new product/service to customers? If you are still in the recalling process, then it's high time to reinvent yourself through innovation. If the company has nothing new to offer, it will eventually lose the interest of the existing customers and discourage potential new ones.

Ironically, employees often catch on that a business is in trouble before the owner does.

2. Reckless hiring

The hiring process followed by the company is highly correlated with the growth of the enterprise. Around 80% of turnover is the result of mistakes made during the hiring process. Quick recruitment is important in today's talent war but if not done in a right manner, this can adversely affect the business. While managers may be quickly filling vacant positions, they may be doing more harm and good if they are not acting in a strategic, well-though-out way.

3. Low sales

One of the most obvious signs of a dying business is low sales. Sales are responsible for the cash flow and once this dries up it directly impacts the business continuity. Low sales could mean that your business may be on its last leg.

4. Low employee morale

Business relationships with your customers are very important, but what about the people who work to make your products/services? The employees are the real backbone of a business firm. If anything, they are the first customers of every business. Ignoring their well-being and productivity means setting yourself up for trouble.

Ask yourself: Are your employees are getting appropriate care and attention from you? Are their objectives clear? Are they their best selves at work? Are they working as one -- a team? A company keeping the employee morale high is on the right path and heading towards a healthy business.

5. Poor cash flow management

After sales, the next financial indicator of a healthy business is cash flow management. There are times when the profit & loss (P&L) statement may show profit even when the company is struggling to survive. Yup, it's possible, and cash flow is the reason. A small business can become a large business only after understanding that cash is king and actually focus their business on generating and preserving cash. It's best to avoid overstocking if you cannot shift or sell quickly. It is a serious waste of funds and points towards poor cash flow management. Poor ordering and invoicing practices also adversely affect the cash flow system.

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