Unemployment has been creeping up, the core inflation report released today shows inflation running hotter and there is still a great deal of uncertainty around tariffs and economic policies which begs a fundamental question: how do you know if your firm/company that you work for is doing poorly?
Back at the end of May, I was laid off but it was no surprise to me at all because there were tell-tale signs.
First, the company had been frequently “reorganizing” for nearly 3 years straight. Each year, some people were moved around and others opted to leave the company. As time went on, the reorgs and layoffs got larger and larger. I actually survived three years worth of reorgs until the whole department, including my boss, was eliminated altogether in May.
Second, another sign was that the firm was not giving out raises. This was a big red flag that the firm was having issues with cash flow and was trying to preserve it.
Third, mood and morale was declining across the board. Every firm always has *some* people that are unhappy but when that spreads to most of the organization, it’s time to update that resume.
I worked for a public company so the financials were available online and I would review them each quarter and could tell things were deteriorating. I also listened to any senior executive’s discussion publicly and privately for clues as to what the real story was with the firm.
There were other subtle signs that were specific to the industry my firm worked in so I won’t post those here but I did ask AI to give me a list of other signs and I think it’s prudent to review it if you’re worried about your job.
AI’s View
There are several financial, operational, and cultural indicators that a company or firm may be doing poorly. These signs can appear individually or in combination, and the severity usually depends on the industry and business context.
1. Financial Red Flags
| Indicator | Why It Matters |
|---|---|
| Declining Revenue or Sales | Persistent drops in revenue suggest shrinking demand or competitive weakness. |
| Reduced Profit Margins | Rising costs or price pressure may indicate inefficiency or poor market positioning. |
| High Debt Levels | Excessive borrowing without growth can create financial instability. |
| Negative Cash Flow | Regularly spending more than the company earns signals trouble meeting obligations. |
| Frequent Layoffs or Hiring Freezes | Cost-cutting measures often reflect financial distress. |
| Delayed Payments to Vendors | Indicates cash flow problems and poor liquidity. |
2. Operational Issues
| Indicator | Why It Matters |
|---|---|
| Declining Product/Service Quality | Suggests cost-cutting or lack of innovation. |
| Frequent Restructuring | Constant reorganizations may indicate poor strategy. |
| Loss of Key Clients or Contracts | Shows weakening market position or competitive disadvantage. |
| Missed Deadlines or Project Failures | Reflects internal inefficiencies and management issues. |
| High Employee Turnover | Often caused by low morale, poor culture, or financial insecurity. |
3. Market and Competitive Signals
| Indicator | Why It Matters |
|---|---|
| Falling Market Share | Competitors are outperforming, eroding the firm’s position. |
| Negative Press or Customer Reviews | Public reputation issues can hurt sales and recruitment. |
| Difficulty Raising Capital | Investors are wary, suggesting lack of confidence in future prospects. |
4. Cultural and Internal Signs
| Indicator | Why It Matters |
|---|---|
| Low Employee Morale | Disengaged employees reduce productivity and innovation. |
| Opaque Communication from Leadership | Lack of transparency often accompanies financial distress. |
| Cutbacks in Perks or Budgets | Cost-cutting in small areas may foreshadow larger financial problems. |
5. External/Legal Problems
| Indicator | Why It Matters |
|---|---|
| Regulatory Investigations | Can damage reputation and lead to heavy fines. |
| Lawsuits or Settlements | Legal liabilities drain financial resources. |
✅ Pro Tip: One or two of these signs may not mean trouble, but a pattern across several areas is a strong signal of decline.
The Firm Health Checklist
Financial Health
| Metric | Healthy Range | Red Flag |
|---|---|---|
| Revenue Growth | +5% or higher YoY | Negative growth for 2+ quarters |
| Profit Margin | >10% (varies by industry) | Sharp drop or negative margin |
| Debt-to-Equity Ratio | < 1.5 (varies by industry) | > 2 or increasing trend |
| Cash Flow | Positive and stable | Negative for multiple quarters |
| Accounts Payable Aging | < 60 days | Delayed vendor payments |
Operational Performance
| Metric | Healthy Indicator | Red Flag |
|---|---|---|
| Employee Turnover Rate | < 15% annually | > 25% or sudden spike |
| Project Delivery | On-time, within budget | Frequent overruns or delays |
| Customer Retention Rate | > 80% | Significant loss of clients |
| Product Quality Issues | Minimal complaints | Surge in defects or returns |
Organizational & Cultural Health
| Metric | Healthy Indicator | Red Flag |
|---|---|---|
| Employee Engagement | High (via surveys or Glassdoor) | Low morale or poor reviews |
| Management Transparency | Clear communication | Sudden secrecy or vague updates |
| Hiring Trends | Steady or growing workforce | Hiring freezes or layoffs |
| Cost-Cutting Measures | Strategic efficiency | Across-the-board cuts on perks/tools |
Market Position & External Signals
| Metric | Healthy Indicator | Red Flag |
|---|---|---|
| Market Share | Stable or increasing | Consistent decline |
| Public Sentiment | Positive media & reviews | Negative press or PR crises |
| Investor Confidence | Strong funding support | Difficulty raising capital |
| Legal/Regulatory Status | No major disputes | Ongoing lawsuits or fines |
I think AI did a pretty good job and I wish there was an AI agent that could automatically send you an alert when it thinks things are going awry but perhaps that will be someday in the future? Of course, I was well ahead of the curve even writing this post back in September 2023.
Share The Wealth
Are you worried about your company doing poorly? Let me know in the comments below.