How to Know When You're In a Cash Crisis

Use these five financial ratios and warning signs to identify when your business faces a cash crisis before it's too late.

1. Calculate your current ratio. Divide current assets by current liabilities. Below 1.0 means you can't cover short-term debts with liquid assets. Below 0.8 signals immediate danger. Above 1.5 is healthy for most businesses.
2. Measure days cash on hand. Divide cash and cash equivalents by average daily operating expenses. Less than 30 days puts you in crisis territory. Less than 15 days means you're weeks from shutdown without immediate action.
3. Track payment delays as crisis signals. Count how many vendor payments you've delayed in the past 30 days to preserve cash. Missing more than 20% of normal payment dates indicates crisis-level cash management. Payroll delays are red alert status.
4. Monitor accounts receivable aging. Calculate what percentage of AR is over 60 days past due. Above 25% creates cash flow stress that compounds quickly. Above 40% typically signals both cash crisis and collection problems.
5. Check debt service coverage ratio. Divide net operating income by total debt payments due in the next 12 months. Below 1.0 means you can't service debt from operations. Below 0.75 indicates severe cash crisis requiring immediate restructuring.