Last Updated May 15, 2025
Running a small business isn’t easy—in fact, only 50% of businesses make it past their fifth year. Even experienced business owners can go through struggles like negative cash flow or losing business because of market changes or new competitors.
A failing business is likely to eventually go out of business entirely. Fortunately, there are strategies to save a struggling company. Businesses can turn things around when they take steps to recognize what is going wrong and develop a plan to fix what isn’t working.
How to Tell if a Business Is Failing
All too often, struggling business owners fail to recognize when their business is in trouble until it is too late. However, most small business failures share similar root problems. Recognizing and taking action on these issues is a critical first step in turning things around.
So, what are some warning signs that your business is failing? Declining profits—whether your revenue and sales are falling or your margins are shrinking—are often the biggest warning sign. This will usually result in other operational issues, such as not having sufficient working capital to cover your day-to-day business expenses. You may even fall behind on bill payments due to your cash flow struggles.
If money is becoming a consistent struggle for your business, you need to take it seriously and start digging deeper.
Common Causes of Business Struggles
When your business isn’t making money, you might feel anxious. The first thing you need to do is identify what’s holding your business back.
Here are some of the most common causes of business struggles:
- Poor cash flow management
- Late customer payments
- Inadequate funding (especially when trying to grow a small business)
- Lack of demand for your products or services
- Low-quality products or services
- Ineffective marketing
- Attracting and retaining quality employees
- Unclear business plan
- Poor customer service
- External market factors, including interest rate fluctuations
What to Do When Your Business Is Failing
When you realize your business is failing, you don’t need to panic just yet. Realistically, you have a few options available. What will be best for your specific situation will ultimately depend on the state of the business (including the severity of the problems it’s facing), as well as what you want to do with the company.
Most business owners want to figure out how to turn around a failing business. The exact solutions will likely vary between companies, but in most cases, you should start by focusing on your finances, the quality of your products or services, and the effectiveness of your marketing.
In other circumstances, you might decide that you want to close or sell your business. Depending on your business structure, there are specific procedures you will need to follow to close or sell your company. Keep in mind that selling a failing business can be a challenge. Unless investors see a path toward profitability or value in your assets, you will likely have a hard time selling a struggling business.
How to Fix a Failing Business
Most business owners want to figure out how to save a failing business, and the following steps can go a long way in turning things around. While there is no guarantee, making these steps a core part of your business survival strategy will greatly increase your odds of success.
1. Analyze Your Business Budget
Every small business needs a budget to establish guidelines for its spending. However, you also need to regularly conduct a budget analysis for that budget to mean anything.
During each budget analysis, take a close look at how your actual spending lines up with your projections. You might identify some significant discrepancies, including areas where you are overspending and creating an extra financial burden.
If you don’t actually use your budget as a guideline, you might as well not have one.
2. Improve Cash Flow Management
Your cash flow management can have a significant impact on your budget and available finances. Your cash flow doesn’t just measure how much you spend; it tracks the total flow of cash in and out of your business. Understanding how much cash is actually available to you at any given time is critical for properly managing payroll and other expenses.
Some common practices to improve cash flow management include shortening payment terms for your client (such as net 15 or net 30), and using electronic invoicing to get faster payments. Early payment discounts and late payment fees can encourage timely payments. You can also maximize your cash flow by waiting to pay your own accounts payable until their due dates.
Business owners should regularly forecast cash flow, especially if sales tend to be more seasonal. Accurate forecasting will help you make advanced plans for periods with less cash inflow.
3. Find Ways to Reduce Expenses
Finding ways to save money is another important step for struggling businesses. Obviously, this starts with eliminating unnecessary expenses, which could even include employee hires or equipment purchases.
Reducing expenses can also involve more creative solutions. For example, you could ask your current suppliers if they offer early payment discounts. You might also benefit from reevaluating suppliers to find more cost-effective solutions. Some businesses also find it cheaper to lease equipment rather than buy.
Rather than hiring a full-time employee for certain tasks, businesses can often save money by using automation software or outsourcing certain activities to a freelancer or third-party service provider.
4. Get Customer Feedback on Processes
You may benefit from speaking to existing and former customers about your business. They can help you identify what is and isn’t working. For example, you might have great products, but poor customer service is driving customers away. Or, they might be switching to a competitor that offers lower prices or a wider range of services.
This customer feedback could even help you identify key strategies to improve your business model, such as identifying niche markets you could serve, ways to improve your product, or new relevant services you could introduce.
5. Reevaluate Your Pricing Strategy
Reevaluating your pricing strategy is another important consideration when your business is failing. Pricing products or services too low might seem to drive a higher number of sales, but your margins could be too low to make a profit and achieve growth. In some cases, you might even lose money. On the opposite end of the spectrum, pricing your products or services too high could make it difficult to attract customers.
Adjusting your pricing to be competitive while still delivering a good profit can help you find the right balance—a balance that will hopefully ensure stronger overall margins for your business.
6. Adjust Your Marketing Strategy
Poor marketing can make it hard to reach your target audience or communicate with them effectively. You should conduct extensive research on your target market, your main competitors, and overall trends. Use this information to adjust your marketing plan so it focuses on the platforms they use, while using messaging that focuses on their interests and needs.
Remember, word of mouth is ultimately your best sales tool. Encourage satisfied clients to leave reviews or testimonials. Implementing a referral program could also help you grow your customer base.
7. Track Your Performance Carefully Moving Forward
Each of these steps should be continually tracked in line with your key performance indicators (KPIs). This will allow you to measure progress in vital areas like working capital, marketing return on investment, customer retention, and so on.
Each aspect of your plan should be tied to a specific and measurable goal that allows you to track your progress and determine whether the steps you’re taking are delivering the desired results.
How to Close a Failing Business
If you decide your business can’t be saved or isn’t worth saving, you might decide to close it. This process involves several important steps, which can vary somewhat depending on the structure of your business.
If you decide to close your failing business, you must first notify all relevant stakeholders, including employees and customers. You’ll need to fulfill your remaining obligations (such as payroll or outstanding loans) and take steps to collect any outstanding accounts receivable. Make sure you are fully compliant with laws related to notifying and paying employees.
Many states require LLCs and corporations to file dissolution documents. You’ll also need to notify the IRS and cancel your EIN. You should cancel any permits, licenses, and contracts. Liquidate any business assets to help with outstanding debt payments. Once these tasks are complete, pay off remaining debts and make your final business tax payments.
Finally, you should distribute any remaining cash or assets and close your business accounts and subscriptions (including bank accounts and credit cards).
How to Sell a Failing Business
Another option for how to get out of a failing business is to sell it. However, selling a failing business can be a challenge, as it likely won’t be as attractive to investors. You should be prepared to negotiate deal terms and be upfront about the struggles your business is facing. Trying to hide your business’s struggles could lead to legal problems after the sale.
To prepare to sell your business, perform a SWOT (Strengths, Weaknesses, Opportunities, and Threats) analysis and seek a business valuation based on income, the market, and/or business assets to determine how much your business is worth. This analysis can also help you identify simple ways to improve the business and make it more attractive to potential buyers.
Brokers and advisors are good resources for facilitating the sale of your business, especially with tasks like online marketing or contacting potential buyers, including competitors interested in expansion or consolidation. Being willing to use flexible deal terms like seller financing or earn-out arrangements can also make your business more appealing to potential investors.
Upon reaching an agreement with a buyer, you will need to prepare a comprehensive sales agreement with an attorney. This agreement should include all of the business’s assets and liabilities and outline the financial terms of the agreement.
In-Summary: What to Do When Your Business Is Failing
Businesses that are struggling aren’t necessarily doomed to failure. By knowing what to do when your small business is failing, especially by looking at your financial activities, you can begin taking steps to turn things around.
Of course, there is still no guarantee of success, in which case you may need to close or sell your business. By fully understanding your options and taking steps to improve your cash flow management, you will give your business a far greater chance of surviving.
Need an Immediate Cash Flow Boost? Try Factoring With altLINE
Cash flow issues aren’t always caused by poor money management. Quite often, businesses struggle because of late client payments that negatively impact their own cash flow.
If this sounds like your situation, and you’re not sure what to do when your business is failing, consider using invoice factoring with altLINE.
Invoice factoring is not a loan. Instead, you sell unpaid invoices in exchange for an immediate cash advance, typically up to 80%-90% of the invoice value. We then take over the process of collecting payment from your clients. Once the outstanding invoice has been paid, we provide the rest of the invoice’s value, minus a small factoring fee.
This way, you can get a cash infusion quickly and without taking on additional debt. A timely cash flow boost can enable you to pay your employees or manage other essential expenses as you take steps to turn your business around. If you have any questions about the factoring process or think your business might be a fit, feel free to reach out at +1 (205) 607-0811 or fill out our free factoring quote form.
Michael McCareins is the Content Marketing Associate at altLINE, where he is dedicated to creating and managing optimal content for readers. Following a brief career in media relations, Michael has discovered a passion for content marketing through developing unique, informative content to help audiences better understand ideas and topics such as invoice factoring and A/R financing.
