10 Telltale Signs Your Business Is At Risk of Bankruptcy

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As a business owner, it is vital to know the warning signs that indicate your business is in financial trouble and may be headed towards bankruptcy. While it is never easy to confront the possibility of business bankruptcy, ignoring the warning signs can only make the situation worse.

Here, we’ll share some of the most common warning signs that your business is about to face bankruptcy:

1. Decreasing Revenue and Cash Flow

One of the most obvious signs your business is in trouble is a decrease in revenue and cash flow. This can be due to factors such as increased competition, changing market conditions, or economic downturns. If your business consistently generates less revenue than in previous years, it may be time to reassess your business strategy and make changes to stay afloat.

2. Increasing Debt

If your business takes on more debt than it can handle, it may be a sign of trouble. While taking on debt can be a regular part of doing business, keeping your debt levels in check is vital to avoid bankruptcy. If you struggle to keep up with debt payments or take on new loans to pay off your existing debts, it may be time to seek professional help.

3. Over-reliance on a Single Customer or Supplier

If your business relies heavily on a single customer or supplier, then you should worry about the possibility of bankruptcy. If that customer or supplier decides to end their relationship with your company, it can have a significant impact on your bottom line. To avoid this risk, it is crucial to diversify your customer and supplier base.

4. Declining Market Share

If your business is losing market share to competitors, then you’re at risk of bankruptcy. This can be caused by factors like changing consumer preferences or increased competition. To remain competitive, it is vital to stay up-to-date with market trends and adjust your business strategy accordingly.

5. High Employee Turnover

High employee turnover can be one of the warning signs that your business is facing bankruptcy. If your employees leave at a higher rate than usual, it may indicate that they are dissatisfied with their work environment or that your business is struggling financially. To avoid this, creating a positive work culture and offering competitive compensation and benefits is important.

6. Poor Credit Score

If your business has a poor credit score, it can make it difficult to obtain loans or credit in the future. This can be another warning sign that your business is in trouble and may be headed toward bankruptcy. To improve your credit score, you must pay bills on time, reduce debt levels, and dispute any errors on your credit report.

7. Inability to Pay Bills on Time

If your business is constantly unable to pay bills on time, it is a telltale sign that it is in huge trouble. This can damage relationships with suppliers and creditors, making it harder to obtain credit in the future. To prevent this, you need to prioritize bills and pay them on time, even if it means cutting back on other expenses.

8. Lack of a Business Plan

If your business lacks a clear business plan, you’re going to face huge problems soon (if you aren’t already facing one). Without a solid plan, making informed decisions and steering your business in the right direction can be difficult. To avoid this, you should create a comprehensive business plan outlining your goals, strategies, and tactics.

9. Lack of Cash Reserves

If your business lacks cash reserves, it can be a warning sign that it could soon face bankruptcy. Cash reserves can help your business weather unexpected expenses or economic downturns. To build cash reserves, reducing expenses and increasing revenue is important.

10. Legal Action

If your business is facing legal action, it is really in trouble. Legal action can be costly and damaging to your business reputation. To avoid this, it is critical to comply with all legal requirements and seek legal advice when necessary.


You must be aware of the warning signs that your business is about to face bankruptcy. By recognizing these signs early on, you can take steps to address them and prevent bankruptcy. If you are concerned about the financial health of your business, it may be a good idea to seek professional help from a financial advisor or bankruptcy attorney. Remember, it is never too late to take action and turn your business around.

The Law Offices of Stephen B. Kass, P.C. is a New York law firm and CPA firm providing tax settlements, IRS litigation/negotiations, and business bankruptcy services. Schedule an appointment with us today!

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