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12 Signs Your Business Is Hemorrhaging Money and How to Stop the Bleeding The shortest path to profit is to watch your expenses as closely as you watch for new customers.

By John Rampton

entrepreneur daily

Opinions expressed by Entrepreneur contributors are their own.

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Cash is undeniably the lifeblood of your business. When it's hemorrhaging money, it's in critical condition.

You can prevent that from happening though by paying to the following 12 warning signs and knowing how to stop the bleeding before it's too late.

1. You're not tracking your expenses.

Don't feel too embarrassed about this. There are more businesses than you're aware of that aren't tracking their expenses like utilities, rent and payroll. However, that's a problem for business owners because this doesn't let them know how much they're spending or earning. In other words, if you're spending more than your business is bringing in, then you're just asking for a financial disaster.

How to stop the bleeding: Gather your expenses from the last six months and set-up a budget so that you can track your spending by category. This will let know how much you're spending each month and where you can trim the fat if that figure is more than you're bringing in.

Related: 10 Flaws of Conventional Retirement Plans

2. You're unable to file your taxes.

Speaking of expenses, one of your greatest is taxes. So, if you're unable to pay sales, payroll, or income taxes on time, then that's a bright, red flag that you're not properly managing your cash flow. This is a major headache since this results in excessive costs of tax penalties.

How to stop the bleeding: When it comes to taxes, preparation is your best weapon. Be aware of upcoming deadlines, get a ballpark figure by reviewing last year's profit and loss statement, consider payment options, and meet with your accountant so that you can plan accordingly and store stashing away enough money to pay Uncle Sam.

3. You're drowning in credit card debt.

Don't kid yourself. Credit card debt is bad. The interest rates are high and they don't help you build wealth. However, that doesn't mean that you shouldn't have a business credit card on-hand. In some scenarios, paying with plastic can come in handy when you use it to earn rewards or as a very short-term form of payment when you're in a pinch. But, if you're drowning in credit card by using it carelessly then you're ultimately spending a small fortune on interest. And, that's money that you could have used to invest in your business's future.

How to stop the bleeding: If you are in credit card debit, then make paying that debt off a priority. You can start by paying more than the minimum payment each month. For serious debt, it may require making a commitment to get out of debt, prioritizing the debt, creating a realistic budget, going on the defense by negotiating a lower interest rate, and thinking differently about spending, like using cash into of plastic,

4. You're paying late fees and juggling bills.

There are two causes of this scenario. Either you don't have the money to pay your bills expense. This means that you're paying late fees, or even worse, your services will be cut-off or your account will be placed in collections.

The reason is that you're just lazy. And, if that's the case, then shame on you. You're just throwing money away each month.

How to stop the bleeding: If you're neglectful about paying your bills on-time, then set-up automatic monthly payments, aka automatic bank withdrawal. This way you'll never miss a payment again since it will be withdrawn from your bank each month.

If you don't have the money to pay your bills, then it's time to look at that budget you created and stop making decisions. For example, you may be able to get rid of unnecessary expenses like your subscription to the Wall Street Journal or being more mindful of variable expenses like office supplies or lunch for you staff. There are also many alternative funding methods to help you get the cash you need.

Related: Multitasking Doesn't Work. Use This 100-Year-Old Method to Get Stuff Done.

5. Your customer invoices haven't been paid in over 90 days.

We've found that if an invoice hasn't been paid within 90 days, then you won't be paid. In fact, only 18 percent of those invoices get paid following 90 days. And, if you aren't bringing money in, then how can you pay your expenses?

How to stop the bleeding: Invoice promptly and frequently. Better yet, invest in online invoicing software so that you can electronically send-out invoices and set-up automatic payment reminders.

6. Not negotiating.

While the price tag is set-in-stone during B2C transactions, B2B transactions aren't. If you aren't negotiating with vendors, then you're overpaying.

How to stop the bleeding: Always make a counteroffer. Don't hesitate to ask vendor for a 5 to 10 percent reduction in rates. If they say "no,'' then you may want to start looking for new vendors who will.

If you don't think that you're assertive enough, then ask a partner, employee, or even your spouse to play the "bad guy."

7. You keep up with the Jones's.

I understand that your main competitor just bought a swanky new office, has the the latest gadgets, spent a fortune on handmade furniture and has a freaking in-house chef. And, that's infuriating. Here's the thing. That doesn't mean that your business isn't better. They may have dumped all their funding into those expensive materialistic things - which means they can't invest in improving their business.

How to stop the bleeding: While there is nothing wrong with impressing people, don't be impractical. There's perfectly fine used furniture and you can rent equipment for the time being. Remember, only buy what you need, not what you want.

8. You have trouble meeting payroll.

Payroll is arguably your second most important expense after taxes. So, if you're stressed out about paying your employees, then you can be certain that you're in serious financial trouble. And, if this keeps happening, you may get into legal trouble as well.

How to stop the bleeding: Payroll is a priority. And, you may have to take some extreme measures to make payroll in the short-term. This includes forgoing your salary, finding methods of financing, or selling your assets. After that, you may have to restructure your business and met with a financial advisor so that this doesn't occur again.

Related: Why Most CEOs Are Frauds

9. You don't have an emergency fund.

Setting aside a little something for an unexpected expense is recommended not just for business owners, but pretty much everyone. For example, what if you run a moving company and a couple of your trucks are shut down due to flat tires and mechanical problems. With your trucks in the garage, you can't make money. But, what if you don't have the money to make the repairs? Now you have to scramble and do something desperate like take out a loan or line of credit.

How to stop the bleeding: The easiest way to start building an emergency fund is to automate your savings. Have a portion of your paycheck or profits automatically deposited into your savings account. You can also automatically transfer funds from one account to another, such as $200 from your business's checking account to savings account.

A budget will help you determine how much you can set aside each month without getting into trouble.

10. You're not making wise hiring or outsourcing decisions.

Payroll is typically the biggest expense a business owner is responsible for. It's one of their most expensive expenses. Hiring the wrong people means that you have to keep training new employees over and over again. That gets expensive.

If you're not ready to hire full-time team members, outsource tasks to talented freelancers. This is almost the norm these days. With more than 54 million freelancers, there are many options. But, don't go overboard. Outsourcing too many tasks can quickly add-up.

How to stop the bleeding: It's always cheaper to retain employees, so make sure that you hire correctly the first time by making sure that they're not talented, but also a good fit for your company's culture.

As for outsourcing, it may be better to pay for you and your team to receive training in these specialized tasks.

Related: The Life-Changing Book That Helps This Entrepreneur Think Big

11. Your finances are disorganized.

I can admit that bookkeeping isn't at the top of priorities. But, I quickly learned years ago that it's necessary if you want to succeed as a business owner. For starters, it makes managing your invoices and expenses a whole lot easier since you which payments have come and gone. That's also useful during tax season. Additionally, keeping your books organized makes it easier to claim deductions and secure funding since investors will want to examine your books.

How to stop the bleeding: Hire a bookkeeper, CFO or business accountant. They know which deductions you can claim and how to keep financial records organized. Most of the time they can be hired part-time or on a as-needed basis.

12. You're getting bad financial advice.

By all means. Hire a professional who can keep you updated on the latest tax regulations and steer you in the right direction financially so that you're more informed decisions and stay-on-the-right-path. Because finding the right person for this job is so important, you have to make sure that this individual is legit.

How to stop the bleeding: If the advice is confusing, the advisor has a vested interest, and if the advice comes unsolicited, you can be certain that you're being scammed or in the company of a lossy advisor. Seek referrals from people that your trust or use reliable online resources.

Related Book: The Tax and Legal Playbook: Game-Changing Solutions to Your Small-Business Questions by Mark J. Kohler

John Rampton

Entrepreneur Leadership Network® VIP

Entrepreneur and Connector

John Rampton is an entrepreneur, investor and startup enthusiast. He is the founder of the calendar productivity tool Calendar.

Want to be an Entrepreneur Leadership Network contributor? Apply now to join.

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