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The 9 Biggest Financial Warning Signs

The key, like any illness, is to catch the symptoms early, so that you can begin to identify the causes.

Brian Hamilton




When you’re running a business, the ultimate sign of financial distress is usually running out of cash – you just don’t have any money left.  However, even though it seems obvious, running out of cash is almost always a symptom and not a cause of business failure.

In this article, I outline a few warning signs that financial trouble is nearby (or that’s it has already started).  I’ll start by identifying a few telling symptoms, and eventually go down to the typical root causes of financial distress.

The Symptoms:

1. You’re struggling to be profitable.

I realise in advance that this is very obvious.  Yet, in a market where it is easy to raise capital, this is not always an incredibly clear one– it is sometimes lost on even talented business people.  No matter what anyone claims, an unprofitable business is, by definition, a business at risk.  When there isn’t a clear path to profitability, the business is forced to raise money outside of itself, which opens up an entirely different world of risk.  The business relies, not on itself, but on others.

2. Your margins are slipping (gross or net).

A margin is taking a profit number and dividing it by sales. Gross profit margin (gross profit divided by sales), usually measures a company’s ability to manage its most important costs. Margins are always expressed as cents on every sales dollar.  Net profit margin is a company’s net profit divided by its sales.  Often, the net profit margin of a company is far more important than the amount of dollars in profit that a company is earning.  This is because net profit margin is typically an indicator of how profitable a company will be as it grows.  In my experience, even financial professionals do not put in enough time into understanding margin performance.

Related: Become Your Best For R500 (Or Less)

3. Your sales are stagnant or decreasing.

Again, this is an obvious one, but healthy businesses grow.  Like the biology of plants, something is either growing or dying.  Sales dollars are used to pay for expenses, so there is a clear financial impact of not having as much sales money available to pay for expenses; however, the very dangerous part of sales stagnation or decline is that it usually indicates a lack of customer acceptance, which is key to any business.   There is no better barometer of market/customer acceptance than revenue

4. Your rate of sales growth is declining.

This is something to watch out for, and it’s a fairly subtle point.  Even if your sales are increasing, you have to keep an eye on the rate of growth.  Is your sales percent change higher, year over year, for this year, than it was last year?

If not, it may be a symptom of financial issues.  One very important note: it’s natural for companies, as they grow bigger, to start seeing their rate of sales growth go down.  It’s much easier to “double” your sales when you had $1000 in revenue last year than it is when you had $100,000,000 last year.  Still, it’s important to keep your eyes on the rate of growth.

5. You are profitable, but do not have positive cash flow from operations.

It would take too many words to explain this in full, but it is very possible to be profitable and still not be generating positive cash flow.  At some point, all businesses need a good accountant—one who is experienced in financial analysis and who can help you navigate through this issue of liquidity.

Not all accountants are good at financial analysis, so this may take some digging on your end.

Related: No Funding? Build From The Ground Up

The Causes:

6. Renewal sales, inbound leads, or other metrics related to market acceptance are flat-lining.

Most companies live and die on the stickiness of their product— i.e., repeat business and word of mouth.  The market tends to be efficient, and customers tend to make good purchasing decisions.  A company should have metrics by which it can evaluate how solid its customer relationships are.

Most businesses have unique ways to measure the stickiness of customer base – renewals, repeat business, Yelp ratings.

When these metrics start sliding, it will eventually have serious financial consequences and will likely manifest itself in some of the symptoms listed above.

7. Your employee turnover is getting higher.

While it’s true that each industry will have specific challenges and rates of employee retention, significant changes in employee turnover tend to be an early warning sign that a business is in trouble.   Sometimes this is measured, erroneously, by changes in key personnel.  I’m more interested in overall employee retention changes.

8.  The product or service you offer is decreasing in quality.

You need objective metrics to measure the quality of your product.  This is very closely related to point number 6.  Ultimately, marketing, public relations, and “buzz” can only help you to a certain extent.  The product’s quality should speak for itself.

You want to be offering a product whose quality is so high that, in order to lose, you have to virtually everything else wrong.  This must be tracked internally by the company, not just by customers.

9. Your office/workspace/headquarters looks messy.

In my previous consulting career, I got to the point where I could walk into a business, and pretty much know immediately if it was doing well or not.  Are the bathrooms clean, are the floors clean, what’s the condition of the paint?  Do people care about the company? You’ll be able to tell by how they treat their workspace.

This article was originally posted here on


Brian Hamilton is the chairman and co-founder of Sageworks. He is the original architect of Sageworks’ artificial intelligence platform, FIND, which is the leading financial analysis technology for analyzing private companies and is used by thousands of accounting firms and financial institutions across North America. He has dedicated his life to bringing greater clarity to financial statements and to increasing financial literacy among businesses. Hamilton regularly leads discussions on private company performance, the financial strength of companies preparing for an IPO and entrepreneurship in major business and financial news outlets such as CNBC and The Wall Street Journal.

1 Comment

1 Comment

  1. Concerned Citizen

    Nov 27, 2014 at 20:29

    good article got a few points out of it though some are just Basic common sense 🙂

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How to Guides

Making Money Online: 10 South African Entrepreneurs Doing It

You don’t need an eight-to-five job or stacks of capital as the launch-pad to start a business and create your own source of income. Here are 10 entrepreneurs who’ve found some unconventional ways of making money online using common platforms.

Diana Albertyn



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How to Guides

Fintech And Small Business Success: 5 Tips For SA’s Fintech Start-ups

Let’s look at what the future holds and how small businesses can benefit.

Colin Timmis




Around the world, the fintech revolution is disrupting our relationship with money, both in our personal and business lives. This global market is expected to be worth $10,499m by the end of 2018 – and digital payments account for much of this growth. This means it’s an exciting time for small businesses looking to get ahead. Whether they’re fintech developers, users or both, these businesses are putting new technologies to work and benefitting hugely.

South Africa’s small business community, like elsewhere, is embracing fintech with enthusiasm. To make the most of  this energy, new incubators and accelerators are setting up shop across the country. Cape Town, for example, hosted its first ‘Startupbootcamp’ which focused on creating scalable technology solutions for financial services and related industries. At Xero, we recently launched a virtual hackathon to enable South Africa’s technology entrepreneurs to compete with other forward-thinking developers on a global scale.

Against an energetic business landscape, fintech presents an attractive market for SA’s budding entrepreneurs. In today’s competitive business environment, new technologies are key to meeting your target audience’s needs and expectations.

So, how can entrepreneurs take advantage of what fintech promises? Let’s look at what the future holds and how small businesses can benefit.

Think smart, grow fast

The range of available fintech solutions and tools is vast. However, new technologies alone are not enough to get your business off the ground – and keep it there. Here are five tried and tested tips for small business owners to keep in mind at all times.

Related: Fintech: Fusing Finance And Technology

1. Have an idea

Entrepreneurs first need an idea, then a plan supported by realistic goals. Your idea has to be good: ask yourself what you’re going to sell, and why. Once inspiration has struck, subject your idea to some hard scrutiny. Chances are someone else is already doing something similar – which is fine if you can do it better.

2. Build a plan

Your business plan is your map. It will help you launch your idea with structure and thought, and guide your company’s progression. You don’t need to stick to your plan like glue: Flexibility is certainly a virtue. A new twist or turn – as long as it’s on the right track – could take the business forward faster.

3. Be flexible

Of course, if something isn’t working then don’t be afraid to abandon it and move on. Fear of failure often results in entrepreneurs throwing good money after bad. Know when to scrap an idea, take what you’ve learnt and focus on something new. Remember, there’s no point crying over sunk costs.

4. Stay alert

When it comes to new ideas, look at what’s old and needs refreshing. Keep a constant eye out for ways to disrupt the status quo and offer people a better way of getting what they need. Even if your business is running smoothly and doing well, if you don’t stay alert, you could lose out on some low-hanging fruit to a competitor.

5. Use technology

Startups are typically constrained by limited resources – namely time, money and labour. A solid plan will help allocate your resources effectively. Fintech solutions can provide a strong backbone that helps you enhance your capacity, manage your cash flow better and improve productivity.

Related: 6 Lessons The Founders Of iKhokha Used To Launch An African Fintech Start-up

The future of fintech in SA

South Africa is fertile ground for fintech. A lack of legacy infrastructure – particularly in outer lying areas – has created a large underbanked rural population hungry for financial services. What’s more, a growing urban middle class is demanding more sophisticated solutions to outdated forms of payment processing.

Fortunately, these demands are not falling on deaf ears. The local tech community is part of a dynamic development ecosystem that is working hard to innovate tools that provide greater financial access. With a clear gap in the market and an eager target audience, the future for fintech developers and users in SA is looking stronger than ever before.

Regardless of what your business offers, where it is based, it’s size or age, it’s time to join the fintech revolution. By embracing relevant solutions, your business will become more agile, efficient, responsive and ultimately, more successful.

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How to Guides

Loan Scams: How To Protect Yourself From Loan Scams

My thoughts are that only if there is a grassroots movement by people affected by these scams to get rid of these unscrupulous marketers, will there be any chance of change.




The current economic situation we’re experiencing in South Africa has created a strong appetite for credit. Often consumers need to borrow money out of desperation just to help them survive. It is here where scam artists and unscrupulous marketers prey on the public, signing them up for services they do not need, with monthly debit orders adding to their woes.

It’s a tactic that we’re seeing more of these days: A company advertises that they can help you secure a loan, even if you’re blacklisted. They charge you for this ‘service’ and at the same time sign you up for a bundle of monthly paid-for add-ons, hidden away in the Terms and Conditions (T&Cs).

They are doing this despite the fact that it is illegal to advertise loans to those who are blacklisted (according to the National Credit Act), and that a company cannot charge to facilitate a loan (according to National Credit Regulator [NCR]). To make matters worse, in 99% of cases, the applicant is turned down, and now has to continue paying for services that they were unaware of signing up for in the first place.

Related: The Definitive List Of South African Business Incubators For Start-Ups

This is criminal behaviour, but for some reason it does not get acted on by relevant authorities (such as the NCR) which should be protecting consumers. With an estimated one million South Africans being preyed upon like this annually, those who are tasked with watching over the consumer should not shake this responsibility. That’s not to say the marketing industry is blameless – far from it, but without a regulatory body, there’s very little to be done to act on these rogue companies. Even Google benefits from these loan scammers – just type in “bad credit loans” and see how many ads pop into the paid search results.

My advice would be for consumers to be vigilant in managing their financial affairs, especially when it comes to “too good to be believed” offers. Here are some pointers to help consumers protect themselves:

  • Never give your bank details to an unknown brand or marketing company that is not your own bank or insurance company.
  • ALWAYS read the Terms and Conditions before signing up for anything. Most of these scams work because the extras you sign up for are buried in the T&Cs, making them part of the contract.
  • Never agree to pay someone to find you a loan. The service provider is conducting an illegal act, since they cannot charge consumers for loan finding services according to the NCR.
  • As difficult as it can be, do not apply for loans if you are blacklisted as there is little chance you will qualify. These scams are run by people who feed off/take advantage of people’s desperation, so rather speak to your bank to get advice about your situation.
  • Sites such as Hellopeter are a great resource to check if companies are offering fraudulent services. It will only take a few minutes, but could save you years of problems.

As for what to do if you have fallen victim to these scams, complain in writing to the Credit Ombudsman ( as soon as possible. At this stage, we’ve lost faith in the NCR or the Consumer Protection Act stopping these types of scams. Rather get in touch with Carte Blanche, your local or national newspaper, and note it on Twitter and Facebook. My thoughts are that only if there is a grassroots movement by people affected by these scams to get rid of these unscrupulous marketers, will there be any chance of change.

Related: Seed Capital Funding For South African Start-Up Businesses

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