The warning signs typically fall into three categories: finance, customers, and the organisation. One or two signals on their own are rarely decisive. Three or more at the same time are often serious — no matter how plausible the explanation is for each individual one. The list below isn't a spreadsheet to fill in. It's a list you can run through in 10 minutes with your latest quarterly report in hand.
Finance — four signals
- Declining liquidity for three quarters in a row. Not a single fluctuation — a trend. If your liquidity measured in months of operations is falling quarter after quarter, that's one of the most important numbers in the business.
- Growing receivables. Customers pay later. You start pushing payments to suppliers further out. It's a quiet signal, because revenue often still looks fine, but the cash is coming in more slowly than it used to.
- Questions or a change in tone from the lender. A relationship manager who suddenly wants to talk about quarterly numbers, starts asking about budget variances, or requests more frequent reporting. It usually means they already see a pattern.
- Investments getting pushed back without a clear reason. The new system, the maintenance, the upgrade — all the things that "can wait a bit". If several of them slip at once, it's rarely about prioritisation. It's usually about liquidity.
Customers — four signals
- Falling renewal rates. If renewals slip from 90 to 80 percent, it looks moderate. Over 24 months it eats up to a third of the customer base. Most owner-CEOs react too late, because the number looks harmless on paper.
- Pressure from large customers to lower prices. Especially when several of them do it at the same time. It's rarely isolated. It usually means customers have found alternatives and are negotiating from a stronger position.
- Longer sales cycles. It takes several weeks longer to close a deal than it did a year ago. Often because customers have become more uncertain about their own business. That spreads to yours.
- A larger share of revenue from fewer customers. Top three customers suddenly account for 55 percent of revenue instead of 35. It often feels like success. In reality it's a signal of dependency on a small number of customers, and a sign that new customers are getting harder to win.
Organisation — four signals
- Rising absence among key people. Not general sickness rates — absence among the people carrying a large share of the day-to-day. It's often a sign of pressure long before it shows up in the numbers.
- Unexpected resignations from experienced employees. People who've been there for years and resign before they have another job lined up. They often see the problems earlier than management thinks.
- Leadership meetings get shorter and more information-based. Fewer real discussions, more reporting. It's often a sign that the difficult conversations have moved somewhere else — or stopped entirely.
- The word "temporary" starts showing up more often. "Temporary dip in orders." "Temporary price rise in raw materials." "Temporary bottleneck in production." If you've used the word three times in a week, some of it is probably not temporary any more.
Which signals get missed most often?
Three of them are often missed by owner-CEOs — not because they're hard to see, but because they're easy to explain away.
Signal #2 — growing receivables. Revenue looks fine, so few owner-CEOs notice the cash coming in more slowly. They see the number in the quarterly accounts, not weekly. Over 12 months it can hide a deterioration in liquidity equivalent to several months of operations.
Signal #5 — falling renewal rates. A one-percentage-point change feels harmless. Compounded over two years, it often eats away the top end of the customer base. Owner-CEOs usually only react when a big customer disappears — but lost customers are rarely sudden. They're measurable months before they become losses.
Signal #11 — shorter leadership meetings. It often feels efficient. In practice it's often a sign that the unpopular topics have stopped reaching the agenda. The problems aren't being raised any more — they're getting handled lower down or pushed out in time.
Example — from 3 signals to 8 in 12 months
A typical mid-sized B2B services company, around 45 employees. The owner-CEO sees three signals in January: liquidity is tight, two key people have resigned, and the lender has started asking about the quarterly report in a different tone. He treats them as three independent things and finds an explanation for each.
By April it's four signals: the three above, plus two of the five largest customers are demanding lower prices in the next negotiation round. By July it's six: the renewal rate on recurring subscriptions has dropped from 88 to 76 percent, and an investment in new equipment has been postponed twice. By October it's eight. Over 12 months, the three separate signals have become one connected pattern.
The owner-CEO acts in November — after 10 months. The decision is essentially the same one he could have taken in January. But the options disappeared along the way, and suppliers and the lender are now negotiating harder than they were earlier in the year.
How to use the list
- Run through all 12 points with your latest quarterly report in hand. Put a tick next to the ones that are true right now. Not "could apply". Apply.
- Talk it through with one outsider. Not to have your view confirmed — to have it challenged. That conversation is usually where you realise how many you've explained away.
- Make a short, dated note. "Today I have X signals out of 12." Repeat in three months. If the number keeps rising, it's no longer a temporary fluctuation.
- Use the 3-signal threshold as a decision point. Three or more signals at the same time are usually the threshold for talking to a turnaround advisor, a former CFO, or someone outside the business. Not to go into crisis mode. To get an outside view of the situation.
The honest test
Three questions while you're sitting with the list:
- How many of the 12 signals can you tick right now?
- For each one you have — how long has it been there?
- What explanation have you given yourself for the three earliest ones, and is it still the same today?
If the answer to question 1 is three or more, and the explanation in question 3 hasn't moved, the list is no longer just an exercise. At that point, they're probably no longer separate signals.