There are some common signs which may indicate that a business is struggling financially. I’m sure we’ve all walked into a business where you’ve sensed that things may not be travelling well. Typical indicators for businesses in retail could be gaps in stock on shelves,  old or damaged packaged stock still on display, dirty or damaged fitout, flooring or lighting,  lack of customer traffic, skeleton staff rostered on duty, demotivated or disinterested looking employees, etc.

But how do you know when your own business is potentially in trouble? In so many business case studies, proprietors can be in denial of problems which are right under their noses, even if they believe they have things under control. The top 9 indicators of business distress are:

  • Unable to pay suppliers when due
  • Rent in arrears
  • Income tax payments are in arrears
  • Staff super payments behind
  • BAS refunds are regularly being retained by the ATO to meet old debts
  • Overdraft facilities are always fully drawn
  • Unable to meet principal reductions for bank debt repayments
  • Credit cards are fully drawn and not paid in full in time
  • Paperwork falling behind, including BAS and Income Tax returns


Does this sound like you, or someone you might know? If it does, all is not lost. In fact the earlier that you can identify the size of the problem, the quicker you can turn the ocean liner around and point it in the right direction.

First, you need a plan. Conduct a thorough SWOT analysis immediately so you can define your problems in detail. Don’t get bogged down and postpone taking action, you may not have time to waste! Once you have a basic overview, sit down with your trusted advisors, usually your accountant or finance broker, to obtain an objective perspective. You don’t necessarily want to talk to EVERYONE as you need to maintain confidentiality and you also can’t afford to become confused or overwhelmed with too many cooks.

Next, get a handle on your present cashflow position. What are your normal monthly outgoings? Do you have any extraordinary costs likely in the future? How much income do you expect to deposit each week for the next month? Are they any sources of short term cashflow you can obtain, such as redrawing upon existing loan facilities or assistance from close family? (This needs care because you need to understand exactly what risks those providing finance to you, especially if they are unsecured loans i.e. no mortgages in place to protect the lender. So you do need expert advice).

Scrutinize the staff roster. Conduct a quick skills audit of your team to help you understand precisely what mix of staff are under your control at the moment. Are there any holes in what your business needs? You need to utilise the staff currently employed in an efficient and effective manner so that you have the right people doing the right thing at the right time. Now, prepare a wages budget for the next week. Look at how many staff you need for each hour the business is open. Identify from your POS reports the busy and quiet periods so you acknowledge objectively your peak periods. Recognise that you may need to obtain industrial relations advice before implementing any changes, so that your understand your legal obligations. The fastest way to obtain cashflow benefits may be to roster yourself to do more hours per week in the short term, so consider how this can work. It also provides you with an opportunity to show real leadership, by setting a great example of work ethic and motivation. You should also be implementing training to ensure the staff have strong knowledge of products and services, so that customers are completely satisfied and monthly sales targets are achieved set. If you can get your team on board to ensure the business provides high levels of service but maintaining cost efficiencies, you are a long way to succeeding.

We are also seeing some success where owners have been able to negotiate new deals with their landlords. As occupancy costs are typically one of the largest overheads, any reduction in the short or long term can be a welcoming relief to cashflow. Depending upon the location of your business, your landlord could be a multinational company or a sole, elderly owner. So tactically the way you approach the landlord differs greatly. In these negotiations you need to make it a win/win offer. You can ask for a reduction in monthly costs, a short term rent holiday or possibly to reduce the size of the footprint to reduce your commitment. But what does the landlord get in return? Hopefully a strong tenant who will be committed to the site for many years to come, thus adding value to the landlord’s asset. These negotiations are critical and it is wise to consider engaging a specialist lease consultant to advice you exactly how to proceed. The cost of their fee should be able to be returned to you any times over if successful.

Meet with your suppliers. Discuss with them what is happening in the business and explain why you believe you are having difficulties. How can they help you increase sales? Are you stocking the right type of stock for your demographics? Are there enough quantities on the shelves to attract customers to buy? Are you taking advantage of all the available discounts and rebates? Could the supplier provide you with market feedback to help you order the right stock, and organise your merchandising to optimise sales? Next, you need to address cashflow needs. One of the fastest ways to improve cashflow short term is to negotiate a short term deal with supplier for extended trading terms. You will need to demonstrate your forecast of sales and cashflow, to highlight what it is you are asking and how long it will take to repay the short term loan. You may consider proposing to allow your current month’s debt be frozen and amortised say over a period of several months, till the cashflow position attains normal levels. That way you will continue to be a consistent long term customer. But be prepared to provide them with copies of your financial statements, business plans including budgets etc. to earn their trust.

Finally, your bank will be the a big piece of the puzzle. If you have worked through the above steps then you will have developed a blueprint as to how to reconstruct the business. You need to meet with your bank and provide documentation of all of the details of your plan. This will require cashflow forecasts from your accountant for the next 12 months to show exactly how you expect things will unfold, and what help will be required from your bank to make this happen. Possibly the bank could allow you a temporary increase in facilities, or reverting to a period of interest only finance to allow cashflow to accumulate. The bank normally has a secured debt position, so ultimately they need to feel comfortable that their debt will eventually repaid in time, whether it is from normal loan repayments being made on time or eventual sale of the business.

Your bank, landlord and wholesaler are stakeholders in your business and your long term viability brings everyone success. As long as you take action.

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