Starting a small business is no doubt exciting. It’s a time filled with endless possibilities—but it also comes with risks and worries of failure. You may have given up a steady paycheque to start your business, as well as invested much or all of your personal savings. What if you fail?
Unfortunately, it’s a common fact that nine out of 10 start-ups fail within the first five years. As hard as you work and as much as you hope for success, your business may be struggling financially and may even be on the path to bankruptcy. It’s important to understand the warning signs that your small business is in serious financial trouble—or will be in trouble soon if you don’t take action now.
Here are six signs you need to be aware of and on the lookout for.
1. You’re Cutting Expenses
Not every month or year will be smooth sailing for your business. You might lose a key client or come into some quality-control issues, and this can affect your revenue. Sometimes, you need to cut unnecessary expenses, such as employee perks or office upgrades. This is a normal part of entrepreneurship.
The problem arises when you’re faced with a cash crunch that forces you to cut your daily expenses. If you need to lay off key employees you depend on or are forced to give up your office space, it’s a warning sign that you’re in serious financial trouble.
2. You’re Unable to Pay Your Bills
When you’re unable to pay all your bills every month, your alarm bells should be going off. You shouldn’t have to choose between paying your mortgage or paying your minimum amount due on your credit card. You shouldn’t have to choose between paying your employees’ salaries and keeping the lights on at the office.
3. You’re Unable to Provide for Your Family
The first few years are almost always a struggle for small business owners. Cutbacks on expensive dinners and family trips are normal. But if, after several years, you’re suddenly unable to provide the basics for your family, such as food and clothing, it’s a sign your business is in real trouble.
4. You’re Excessively Stressed about Your Financials
Every business owner will be relatively stressed. Entrepreneurship, after all, is really tough. But if you’re losing sleep night after night, lashing out at your loved ones, and becoming depressed and anxious over your business’s financials, it’s a definite warning sign you need help.
5. You’ve Used up All Your Savings
You may have invested some of your personal savings into your business to fuel its growth. But do you have any cushion left?
Small business owners are often so dedicated and committed to their companies that they will do just about anything to keep them afloat. If you’ve used up every penny and even liquidated assets to keep your business alive, it’s time to consider alternatives.
6. You Haven’t Paid Your Taxes
As a business owner, you’re required to pay HST and payroll remittances to the CRA on a regular basis. A failure to remit by the deadline will lead to fines and penalties.
If you’re struggling to get by, you may have skipped paying the CRA in order to make due. Not only is this a bad sign, but it will also lead you down a spiral of debt to the government that will make it even more difficult for you to stay afloat.
Being a small business owner isn’t always a walk in the park. There are going to be bad days, weeks, and even months. If you cannot get out of your downward financial spiral, however, and you’re noticing any of these six signs, consider speaking with an insolvency trustee right away to determine your options.