A stitch in time saves nine. Sounds familiar? This might be an age-old saying, but it happens to be one of the most relevant anecdotes when running a business.
Of crucial importance to the success of any business is the continual observation of the company’s financial health. There can be a variety of symptoms that might show up when you’re least expecting them and that’s what makes them difficult to be spotted. Financial crises can be prevented and fought if you are alert enough to look for the signs that show that your business is in distress. Being vigilant, recognizing the signs and seeking a helping hand can help you in such times. Another thing that you should definitely ponder upon is who are you going to for help. It’s always better to be forewarned and prepared than repenting later.
Here are some red flags that you have to look out for:
‘Cash is king’ exists for a reason. The most prominent sign that your business is suffering is the constant scarcity of cash. Sometimes it is unavoidable if you are starting a project that requires heavy funding, but frequent lack of cash surely means that your business is in distress. If a business is spending more than it is earning, the outcome cannot be profit.
Low profits and high turnovers
In terms of financial assessment of any business, what is important is to not only look at the topline or sales growth of the business. Another important aspect is also the margins in these businesses. A low margin means that there is less money in hand for further investment, low amount of working capital in hand to fuel your growth and less amount of money to service loans. Even banks/financial institutions or other stakeholders will find a business with low margins less attractive. This also pertains to any new orders/projects which might be on offer.
Unpaid statutory dues
If you constantly have to keep your statutory payments like GST, PF of employees on hold, that is a warning. Not making these payments on time can lead to penal actions and financial losses to the organization, loss of reputation and business integrity and customer loyalty is heavily impacted.
Taking too many sales orders or taking up too many projects at the same time and funding those solely through loans means that you do not have enough funding. If you don’t plan in advance how to repay the loans and most importantly, if you don’t determine whether you can afford the repayment beforehand, you are bound to face trouble.
Low CIBIL score
Your CIBIL score is determined on a number of factors such as your payment history, types of credit and number of loan accounts, guarantors on the loan, credit history, opening and outstanding loan amount, etc. Many banks, NBFCs and various other financial institutions offer loans to people apart from other financial instruments such as credit cards. These loans are disbursed only when the applicant has a good credit score. Having a bad CIBIL score decreases your chances of getting loans.
This refers to the manufacturing of diverse products which have no relation to each other. It is difficult to manage your finances while entering a new market. If you have done that, there is a high chance of getting stuck with no profits. It also consumes your existing profitable business and starts putting a strain on the finances of the existing business. It might also happen that since it is a new business, new markets and products, you may not fully understand the risks associated with it. Hence, an unrelated diversification is a risky business move which might spell trouble for your existing business as well.
If you find one or more of these signs, act immediately. Seeking help from a financial institution to support your business in the time of crisis can be one of the solutions. At Electronica Finance Ltd, we assure complete transparency and reliability. EFL understands the challenges, especially financial, that a typical MSME business has to face. EFL has more than 40 offices across the country and has served more than 7500 customers satisfactorily. It offers machine as well as non-machine loans competitive interest rates and flexible repayment options. Get the fastest loans through our no-hassle processes. Fight the cash crunch, bridge your cash flow gap with EFL’s business loans and fuel your industry’s growth with updated equipment with our machine loans. With its vision of “Creating Success Stories for Businesses”, EFL is always ‘By Your Side’ in any business endeavor you undertake. Watch your enterprise growing and prospering with our customized finance solutions!