61. 7 Tell Tale Financial Signals that all is not well in your Business

The financial health of your business is a key indicator of how well it is performing; and many business owners don’t recognise what that key indicator is shouting at them. They simply may not realise when their business is struggling. Not noticing these warning signals can be a big problem so you quickly need to know what is what.

So what are these seven financial telltales?

1. Struggling To Pay HMRC

When it comes to making payments, HMRC is the most important organisation you need to keep on side. They have the resources and determination to collect the money they are owed – and have the power to quickly wind up your business if you don’t make payments.

Recent history has shown us how owing and not paying money to HMRC can destroy your brand. Rangers Football Club was once a Scottish Premier League giant, but they failed to make their HMRC payments and practically disappeared overnight. They had to restart in the lower leagues and still haven’t made it back.

Other businesses haven’t been as fortunate to be able to start again. They’ve simply been wiped out of existence. Don’t let this be you. Why not have a look at one of Tectona’s earlier articles – Is HMRC breathing down your neck? – which looks at how to handle HMRC arrears and explores one life-raft – HMRC’s “time to pay” arrangement.

2. Extending Length Of Credit With Your Suppliers

Not paying your suppliers on time is one of the early portents of trouble. The longer you leave suppliers waiting for their money the greater the chance that sums owed increase (as they add on administrative charges and interest), the less reliable the timeliness and quality of supply until they cease supplying you or they take you to court. And, of course, they too can wind up your company.

Either way, your company could be placed in a very difficult position; without key suppliers you simply will not be able to trade.

3. Your Customers Paying You Later and Later

There are three reasons why your business might be struggling to collect payments in on time.

  1. Poor standards in service / product.
  2. No or slow invoicing.
  3. Lack of attention to debt collection.

Whatever the reason, if income is down, you will struggle to meet your financial obligations. Therefore, you need to take late payments and bad debtors very seriously. Set up the right processes to ensure payments are received on time, every time.

4. Your Available Cash Is Insufficient

Have you noticed that your business’ cash reserves are not what they used to be or that you have had to extend your bank facility a few times recently? This means that you are spending more money than you are collecting which is unsustainable and you need to quickly work out why and do something about it.

5. Slower Stock Turn

Do you monitor your stock turn? Has it changed? Is this because of a weakening in demand? Perhaps you need to change your stock levels so you have a better balanced mix and quantity of products and supplies.

Alternatively, is there an underlying change in the business? Do you need to look at reinventing the business, its services and supplies? This could be a critical and difficult decision but might be the right and only approach to ensure the survival of your organisation; a brave, yet necessary, step … and it could need major investment.

6. Gross Margins Sliding

One of the most important indicators to monitor is your gross margin; do you? Has your gross margin fallen in recent months? There are a number of possible causes for this. Perhaps market pressures have reduced the demand for your product or services. Is there a new substitute product or technology (here think Kodak film), or are there seasonal variances in what you are offering? Has a new competitor entered the market and seduced away a lot of your customers?

Another reason could be related to your costs. If they’ve increased but you have failed to raise your prices then your gross margin is going to reduce. This would be the time to look at your pricing strategy and consider if you need to raise your prices. The “price/volume” dynamic is a fascinating one – for example, if your gross margin is 20% and you put your prices up by 5% – you could afford to lose 20% of sales volume and still generate the same profit. Don’t be a busy fool!

Reduced margins could be down to laziness in the selling process. Are your sales team not properly working out quotes, qualifying leads or generating enough interest? Any of these will quickly reduce the gross margin.

7. Staff Costs Rising

Staff are one of the biggest costs for many businesses, which is why they must be monitored closely. A rapid rise in staff costs could be an indicator that something is wrong.  For instance, if there is more overtime being paid than usual, capacity and expected workload are not matched; this might be the time to review staffing levels and look at productivity and efficiency, reconsider processes or look at automation.


Recognising and acting on the financial tell tales of your business are critical to its success. You cannot achieve great things by burying your head in the sand; instead you need to be actively looking out for the warning signs that your business might need fine tuning. Once a problem has been identified, be proactive to find the root cause and solve it.

Tectona do just that – we help you look at the financial health of your business in the round; we will let you know which areas you need to turn your attention to to keep you on the right track. Contact The Tectona Partnership now.

Posted in Tectona Ten - Improving Profitability, Tectona Ten - Strategic Leadership.

Leave a Reply