Financial Red Flags: Warning Signs For Small Business

Usually, when you hear people talk about red flags, they are referring to their latest Tinder match, but red flags are all over the place if you are paying attention. When it comes to your small business, here are a few things you should be looking for that let you know you may be in for some trouble down the road:

Your accounts receivable list is starting to look like a CVS receipt.

Most customers pay on time, or at least on time-ish. There's always a few stragglers, but if that list of unpaid (or slow pay) invoices is getting longer and longer, it's time for action! The longer those receivables go unpaid, the more likely it is that you won't ever see payment. It may be necessary to institute a late payment fee and policy or start to take payment up front in order to mitigate this issue.

The incredible shrinking profit margin.

If your cash on hand is slim and getting slimmer, heads up! With low cash flow, you will be caught in a major bind in an emergency! You could have excessive invoices outstanding or unnecessary expenses, or you aren't properly charging for your services. Time to get to the bottom of the cause and build a cushion.

Your financial method is best described as "The Ostrich Approach"

You rarely, if ever, get into your own books. You don't check in with your bookkeeper regularly and you couldn't identify a profit and loss report even if someone folded it into an oragami crane and tossed it in your lap. Face it, you're avoiding the numbers. We get it: financials aren't exactly a day at the beach, but ignoring it will haunt you like sand in your crack. Take this as your sign to schedule a meeting with your bookkeeper or accountant and make sure there isn't a hole in your dinghy (see what I did there?)

Your pricing strategy is basically a series of wild guesses

What does it cost to deliver your goods and services? If your answer is basically a mumble and some shuffling of papers, it's time to take a hard look at your cost of goods sold (COGS). Break down the costs of your overhead, materials, delivery costs, etc and calculate what it costs YOU to deliver your amazing product. It may be time to adjust prices, phase things out, or re-source your materials. Even if you think you have a pretty good grasp on your costs, it's always a good idea to check back in from time to time to adjust for changes in the market.

Creeping credit card balance

You had the best of intentions. You got a business card to build your credit and maybe earn some rewards. Initially, you were good at paying it off every month, but soon the balance got out of control. Maybe you had an emergency you weren't prepared for, or it was just too easy to keep that cash and put off the pay off. Regardless, it's time to develop a plan to pay down that balance and use your credit wisely.

Oops, you did it again

You forgot to pay a bill. It happens to the best of us, but those penalties and fees can really add up, not to mention the hit to your reputation. Get a system in place to remind you when important bills are due, or better yet, contact your friendly neighborhood bookkeeper (*AHEM*) about bill pay services.

What red flags do you watch for that indicate it's time to make adjustments? Is there a pattern you've noticed and you're wondering if it's a red flag? Let us know in the comments!

IN CASE YOU MISSED IT…

Due to inflation and rising fuel costs, the Feds did a mid-year update to the mileage rate for the remainder of the year. The new rate for 2022 is $.625 per mile. If you are doing mileage reimbursements make sure to update your forms and policies as needed.

Did You Know?

July is National Ice Cream Month, National Picnic Month, National Bad Luck for Weddings Month (I know a couple of people who wish they had known this one!) and my personal favorite, National Blueberry Month. Since the 24th is also Tequila Day, let’s have some fun and make blueberry margaritas!

Muddled Blueberries

3 oz lime juice

5 oz blanco tequila (I like Milagro, but you do you)

2 oz Grand Mariner

Serve over ice and enjoy with your favorite book, a furry friend, your neighbor, or just by your bad self!