Top 5 Warning Signs Your Business May Be On The Brink Of Collapse

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Hundreds of businesses in UAE collapse each year, thus owing millions of dollars to their creditors. Most companies end up liquidating their assets to pay back their creditors, and only a small percentage of companies survive through voluntary administration. Small businesses are more likely to collapse as compared to big corporations.

But, that is not the only option available for companies in trouble. By looking out for warning signs in time and professional intervention as early as possible can save your business before it’s too late. By getting professional help, your business can continue operations through a much-needed restructuring.

5 Signs Your Business Is on the Verge of Collapse

business collapse

Small to medium enterprises (SMEs) are more vulnerable to collapse than their counterparts. So, the following are the five biggest warning signs that your company may on the verge of collapse and a complete shutdown and how to get your business on track again.

Sign #1: Poor Cash Flow

The first and most common problem for small businesses is poor cash flow and for several reasons. There are late payments from the customers (mostly big corporations) and small lending criteria, which makes access to cash difficult for these businesses. Thus, companies that are on the verge of collapse are usually broke!

In such cases, the business may be profitable with high sales and increasing profits, but there is no cash. There is a huge difference between profits and working capital or cash. Your business might have profits but is not good at collecting revenue, hence, less cash. If you are facing this situation, consider hiring the best accounting firms in Dubai to avoid bankruptcy and shutdown.

Sign #2: A Drop in Revenue

When you are looking for warning signs that your business might be in trouble, the first place to look for is the finances and accounts.  According to finance experts, companies mostly collapse due to a variety of reasons, including poor cash flow management, loss in revenue, poor accounting, bookkeeping, and lack of profitability.

Thus, the second warning sign is a drop in revenue. This results in a series of unfortunate events that break the company. Low revenue means an increase in costs, and failing to meet these costs with delay in tax payments. And last but not least is drastically cutting costs to achieve break-even.

As a result of a drop in revenue, the business doesn’t have cash reserves to pay for the expenses and make payments to the creditors, hence the sudden collapse. This chain of events is often seen in companies that don’t have a cash flow forecast or proper accounting system.

Sign #3: Poor Management

Another sign that your company is on the verge of collapse is the change in your people, especially those in top leadership and management positions. Most business owners often blame the collapse of their business on finances and people, but don’t look for the root cause behind the issue.

The majority of the time, the cause is poor management on behalf of your employees. Most of the time, managers and directors know about a problem but avert their eyes from the root cause. Instead, they start working harder to get the next big job, while the problem continues to grow. They stop reviewing monthly financials and hope for the situation to get better itself.

Sign #4: Increased Expenses/ Debts

Small businesses don’t often have proper accounting in place and end up spending money faster than they make it. Higher expenses and low-income forces the company to take a loan or debt from creditors. In such cases, most of the company’s revenue ends up going towards servicing debt instead of business growth, and soon you find yourself in a debt spiral.

You cannot invest in business growth and improvements because you are repaying what you have borrowed in the past. If this happens, it is time to take a step back and cut down expenses that are not vital. If you are still spending more than you make and can’t cut costs any more, consider talking to a professional.

Sign #5: Inadequate Accounting 

No matter the size of your business, you need to be able to understand the accounts inside out. For successful operation, you need to take time to ensure the best administrative practices and robust accounting system to manage your business accurately. Having good and quality accounting is essential for companies to keep growing.

If accounting is not your strength, then appoint the best accounting firms in Dubai who understand your business and its structure to make sure your accounts reflect your business needs. In order to avoid financial strife, business owners need to have a clear understanding of their balance sheets to measure profits, loss, and the overall state of their company.

Get Help ASAP to Survive!

business collapse

These are some of the important signs to look out for in your business that hints at a possible collapse in the near future. If you see any of these signs, don’t delay and get the help of a professional CPA firm if you want to continue operations and survive. These experts will help you get things back on track and avoid liquidation of your business. The key to this is to act as soon as possible.

Don’t wait for things to improve magically, but do something strategic to change the way your company is operating and get to restructure your business.

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