Storm clouds are gathering for the Australian economy with skills shortages, soaring costs, rising interest rates and falling consumer sentiment creating a challenging business environment. For SMEs, it’s important to act quickly if conditions start affecting their businesses. Here are seven early warning signs for SMEs looking to support their business. 

1. Poor cash flow

They say cash is king and it’s important for your business to maintain healthy cash flow. If your cash flow statements and forecasts show continued cash shortfalls and you are struggling to pay your debts on time, it’s time to reassess. Poor cash flow may indicate weak sales, rising expenses, overstocking, underpricing, overinvestment in capacity or that customers are not paying you on time. It could also be a sign of poor budgeting or that you are expanding too quickly. Speak to your accountant or broker if this issue is affecting your business. 

2. Changes in customer behaviour

This could include falling demand for your products or services or losing a big customer for some reason. You may also find that customer complaints are rising or you are experiencing more complaints or refund requests. When faced with this issue, it’s important to examine the reasons for the variation in sentiment. Look at what’s changed recently in your business and whether this change could be responsible for the challenges you’re currently facing. 

3. Weakening financial position

Signs that you may be heading for trouble include declining profits and sales or rising costs eating into your margins. You may also be experiencing difficulties in accessing new finance from your lenders or may have an overreliance on borrowed funds to operate. You may also have reached your limit (or exceeded) your credit limit or may be unable to draw a salary from the business. 

Other causes could be discounting too much, poor product pricing, hidden costs or falling staff productivity. Make sure you speak to your business finance adviser for potential solutions. 

4. Poor sales growth

This could be a sign that the market is not satisfied with your products or services or that tastes have changed. Your marketing and sales efforts may also not be up to scratch and may have to be reviewed. It could also mean that competitors are offering better products and services or charging lower prices. 

5. Falling behind on compliance obligations

This includes not keeping up to date with your compliance obligations, such as business activity statements (BAS), tax returns or superannuation payments to staff. Your accounting and record keeping could also leave much to be desired, making it harder to budget, make forecasts and identify areas of weakness. 

6. Holding too much stock

This can dent your cash flow and you may also be forking out more for storage. It could be a sign that you’re not turning all your stock on a regular basis and there are added risks that your goods could perish, be damaged or become obsolete. 

7. Unhappy staff

High staff turnover or low employee morale can also be a sign that your business is faltering. Staff are often aware that a business is struggling and may choose to leave sooner rather than later. A high staff turnover means you will have to spend time and money attracting, training and retaining staff. Low morale can also lead to low productivity. 

If you recognise signs that your business is struggling or are finding it hard to access financing, give us a call.