What are some common red flags if a company is going under.

10 Comments

1. Rebecca AliMarch 27,2022 at 12:51PM UTC

   I think you should trust your instincts. It can't hurt to have a back up plan - get your resume updated, start talking to trusted friends about new opportunities/networking, etc. I would say that one person leaving is a 'bad fit' - two people leaving is probably a red flag. Also, in the history of my work experience, when payroll is on a weekend, you typically get it the Friday before because failure of payment can throw off auto pays for employees and create a huge mess for everyone involved.

2. Ramona d'ViolaMarch 27,2022 at 1:07PM UTC

   Run.

3. Melissa MonsonMarch 27,2022 at 1:18PM UTC

   As a person who has been let go before from a small, private company - I would agree with what is being said here. Trust your instincts. You can see the writing on the wall before it happens. Get your marketing materials in order and start networking.

4. Debra SesholtzMarch 27,2022 at 1:55PM UTC

   Start-ups can offer great opportunities, but there can also be a high level of risk. Having been at a start-up that experienced financial issues (asked not to cash paycheck for a few days) you need to evaluate the level of risk you can tolerate.Based on the signs, probably a good time to dust off the resume and see what other opportunities are available.

5. KatMarch 27,2022 at 2:49PM UTC

   Lots of red flags, so get out while you can. If they can't afford to pay you and lie about it once, they'll do it again. There are funding issues, financial mismanagement or both. It's also possible they're not paying Federal employment taxes (another red flag) to save money or make payroll. I've heard that happen at other start ups-consistent funding is a big issue. Time to see what else is out there before the company folds.

6. TroyMarch 27,2022 at 4:41PM UTC

   Hey Anonymous, I believe you just shared the tell-tale signs. I would say follow your gut and find something else. However, while you are job searching, I would recommend having a convo with your boss to discuss the changes, and based upon their response, you can use the info as a compass and determine how you would like to move forward.

7. Barb HansenMarch 28,2022 at 1:47AM UTC

   speaking from years of experience in Startup Land, here is the list of things to watch that indicate troubles in the money department.

   1 - Pay checks being late. If pay checks are going to be late, good startup leaders inform their staff. Not informing the people is a big red flag.

   2 - Top level executives leaving.

   3 - Projects and/or budgets getting cancelled without explanation.

   4 - Company wide meetings getting cancelled.

   Individually, any of the items above could mean nothing, but if they get stacked up, that's never a good sign. And it's an even worse sign that the founders aren't talking .

   Some advice for anyone interviewing at a startup:

   Look them up on Crunchbase to find what their funding stage is and how much money they have raised. If you are being hired at a company that raised 1M at a seed round and they are hiring 20 new people, it's not going to be a long time before they run out of money (unless they plan to raise again or their revenue model kicks in).

   If they are a bootstrapped, pre-seed, or seed (perhaps even a small series A) startup, ask them if they are planning another funding round.

   If yes, they are planning another funding round, them ask them what their current run-rate is (how many months can the company function with the money they have in the bank now (with no additional funding). Perhaps a recruiter can't answer that question, but they can get you that answer.

   If no, they are not looking to raise another funding round) one would think that their revenue has grown to the point where they don't need funding (which is a good sign). I would ask additional questions about any risks the hiring manager sees from competitions and the economy.

   Taking a job at a startup with a 3 to 6 month run-rate could a risk for you. There is nothing wrong with taking a job at a startup with a 6 month run-rate, you can learn a lot, the founders might have their next funding round lined up (just not in the bank yet), and/or they may have revenue kicking in soon. It's just really nice to know so you can make an educated decision about taking the job.

8. Amy Elrod-LahtiMarch 28,2022 at 3:51AM UTC

   Hi there, a number of years ago I worked for a company that went under while I was working there (I left shortly before the final nail was in the coffin) and in doing so I learned some valuable lessons about what to look for.

   Missing payroll is a big red flag - in many states, companies have a legal obligation to pay employees on the regular schedule they've set out by precedent or in their employee handbook. As a small-business consultant, I can tell you that by the time businesses start missing payroll, things are usually pretty dire, financially. The excuse you got is not entirely reasonable to me - I have seen HR/payroll folks work through weekends, on holidays, and late into the night if necessary to make sure people get paid on time.

   In my situation, I remember there being a lot of closed-door meetings with people speaking in urgent tones, and when I asked what was going on, I would be told "don't worry, everything's fine."

   Also - money that I had counted on to pay bills my department had incurred would go missing from the bank account with no explanation - I remember we got a large payment and I was excited that we'd be able to pay people we owed money to for services I had contracted for; the next day our chief accountant walked into my office and shut my door and said "all the money's gone, we can't pay anyone" and a couple of days later he cleaned out his desk after hours and never came back to work. Shortly thereafter, we had bill collectors calling, and actually showing up at our offices trying to collect (unsuccessfully).

   Your own gut is a great indicator of what's really going on and whether it's time to get out. I wish I had listened to my gut more, and walked out of that job when I first started seeing red flags, instead of waiting until things got really dire. You don't need to hang in there if your gut is telling you it's time to go. Good luck!

9. Beverly RuyleMarch 28,2022 at 4:02PM UTC

   missing payroll is the only flag you need to see. Run.

10. AnonymousMarch 29,2022 at 10:18AM UTC

    Missing payroll is past the point of trouble. I would prepare to leave asap. Things are not going to magically improve. This is serious and you are very wise to be questioning everything. Get your resume up to date and start networking.