Signs That Your Business is in Trouble
Recent figures show that the number of UK private sector businesses fell by around 1% between 2023 and 2024, with the smallest firms seeing the most significant drop.
And with Trump’s new tariff hikes expected to affect UK trade, industry experts at Liquidation Centre have shared their thoughts on how to recognise early warning signs of financial difficulty and what can be done to turn things around
What are the biggest warning signs your business might be struggling?
In business, red flags are the early indicators that something isn’t quite right. Many companies get into trouble because these warning signs are missed or ignored. A well-known example is Enron’s collapse in 2001, where key financial issues went unchecked, leading to one of the largest corporate scandals in history.
So, what should you be looking out for? Richard Hunt, Director at Liquidation Centre, explains…
1. Losing a key customer or delayed payments
Losing a major client or facing payment delays can have a serious impact on cash flow, which in turn affects day-to-day operations.
“One of the most common early red flags is losing a key customer or finding that payments are coming in late. Businesses used to getting paid on time suddenly find themselves chasing invoices, which puts immediate pressure on cash flow,” says Richard.
2. Rising costs of sales
If your cost of goods or services increases but your income doesn’t, it’s a clear warning sign that margins are tightening.
“Another big red flag is when the cost of sales starts to climb, whether that’s materials, wages or other expenses. This usually leads to a visible dip in cash reserves, and directors often resort to short-term borrowing just to stay afloat. At that point, choices have to be made about which creditors to pay first, while arrears with HMRC or landlords begin to stack up. On paper, the balance sheet starts to show that liabilities are overtaking assets.”
3. Sudden staff or leadership changes
When key employees or leaders leave unexpectedly, it often signals deeper issues within the company.
“When uncertainty sets in, leaders sometimes prefer to walk away rather than face difficult trading conditions. High staff turnover can also affect morale and productivity across the business. Clients and suppliers will pick up on that instability too, which can create even more pressure,” Richard adds.
How can you spot these red flags early?
“Catching these issues early makes all the difference,” Richard advises. “If your business is becoming reliant on loans or credit to stay afloat, that’s a major warning sign. Missing supplier payments or facing increased creditor pressure is another. Even if sales look steady, any consistent drop should prompt a closer look at the figures. And if HMRC reminders, penalties, or legal letters start arriving, that’s a clear sign that action is needed. Often, that’s when directors come to us for urgent support.”
How can you get back on track and keep your team engaged?
“The most important thing is to seek advice as soon as possible, not when things have already reached crisis point. The earlier you act, the more options you’ll have. This could mean restructuring, cutting unnecessary costs, or renegotiating with suppliers. Exploring funding options such as invoice finance can also quickly release working capital and stabilise cash flow.
But don’t forget your people in the process. Staff often sense when something’s wrong, so being open and supportive helps. Keeping them informed and involved can actually build trust and boost morale, even when things are uncertain.”