SYMPTOMS OF SMALL BUSINESS FAILURES
Failure is a natural part of the creative process. The only people who never fail are those who never attempt anything new.
It is however necessary to distinguish the symptoms of failures from the problems.
The symptoms of failure are the indicators of failure that alert the entrepreneur of impending problems that may lead to the collapse of the business, if the problems remain unsolved. Once the symptoms are sighted and they converge, the more dangerous they are, therefore become evident failure signals, if corrective measures are not taken, these symptoms include:
• Deterioration of working capital: working capital is the amount of cash necessary to cover anticipated current expenditure. The main components of working capital are the current assets. Therefore when receivables cash and inventories cannot be easily converted into cash and the amount of working capital cannot sufficiently meet the obligations of the current creditors, the business failure may likely be experienced.
In practice the working capital position of a small scale business may be affected by continued operating in losses unusual non-recurring losses, payment of excessive long term repayment, absence of cash planning, etc.
• High debt ratio: the higher the rate of dept financing to the amount contributed by the owners, the more the need for corrective measures. A high debt ratio signifies a risky business. It implies that the business is solely financed by the creditors’ funds. This may reduce the reputation of the business.
• Declining sales : inability of the business to maintain consistent growth in sales turnover
• Declining profit: continuous decline in profit
• Declining capacity utilization : persistent reduction in productive capacity
• Low quality of products: declining quality of products
• High labour turnover: the rate of which employees leave the firm
These are only but few of the symptoms of business failures. these leads to the actual problems that may soon nail the business if proper attention is not given to revamp it. it is therefore necessary to always look out for those symptoms early enough before it gets to an unmanageable state for the survival and success of the overall business.