Warning signs that a US small business is failing, and what a European owner should watch first

A US company rarely collapses in one bad week. It drifts: the bank balance gets thinner every month, a large customer pays later and later, the owner quietly covers payroll from a personal account, and a state filing slips because nobody had time. From Austin we see this pattern most often in companies run from Europe, where the owner sees the numbers once a quarter and the warning lights stay invisible for too long.

What the survival data says

The Bureau of Labor Statistics follows every cohort of new private sector establishments in the United States year by year. The picture is sobering and also useful, because it shows where the danger is concentrated.

The most recent cohort looks the same in its first year: of the establishments opened in the year to March 2025, 78.9 percent were still operating in March 2026. Roughly one in five new businesses is gone within twelve months, and about half are gone within five years. After that the yearly losses get much smaller: of the survivors of the 2015 cohort, more than nine in ten made it from each year to the next once they were past year five.

Distress is also rising. In the twelve months to June 30, 2026, business bankruptcy filings in the federal courts rose 16.9 percent, from 23,043 to 26,941. Bankruptcy is the last stage; most failing companies simply stop. For an owner this means that attention pays off most in the first years, and the signs below are worth checking every month during that period.

Cash signals: the ones that show up first

Profit is an opinion of your bookkeeper; cash is a fact of your bank. Almost every failing company we have seen showed cash trouble before it showed losses on paper. The signals:

• Runway under three months. Divide the bank balance by the average monthly net outflow. If the answer falls below three and keeps falling, you need a plan this month, not next quarter.
• Owner money keeps coming in. A capital contribution at the start is normal. A transfer from the parent company or your personal account every few weeks to cover rent and payroll is a business that does not pay for itself.
• Receivables age. If invoices older than 60 days grow as a share of what customers owe you, your customers are financing themselves with your money. Ask why before you ship again.
• Vendors move you to prepayment. When a supplier stops giving you terms, they have usually seen something in your payment history that you have not looked at.
• Credit lines are drawn to the limit. A line of credit used for seasonal swings is healthy. One that sits at the limit and only ever grows is covering a hole.

None of this requires sophisticated software. It requires books that are closed every month. If your US company still runs on a shoebox of bank statements sent to an accountant at year end, the first fix is clean bookkeeping for the LLC, because you cannot read signals from numbers you do not have.

Customer and market signals

The second group of signals sits in your sales data. They are slower than cash signals but they explain them.

• One customer is more than a third of revenue. Losing that customer can end the company. Concentration is common in the first US years of a European company, often because the first client was the reason to come.
• Discounts buy the growth. Revenue rises while the gross margin falls quarter after quarter. You are buying volume, and every extra sale costs you more.
• Repeat orders thin out. New customers arrive, old ones do not reorder. The product or the service has a problem the sales team is not telling you about.
• The pipeline is all optimism. Deals stay at 80 percent probability for six months. In the US market a buyer who is interested usually decides fast; a long silence is mostly a polite no.
• Competitors price below your cost. Sometimes they are better. Sometimes they are subsidized or about to fail themselves. Either way, you need to know your true unit cost, landed in the US, including duties and freight.

We tell clients to look at these five points every quarter with someone who is not emotionally attached to the business. A board member, an outside adviser, a fellow founder. Our page on business risks in the US covers the structural risks that sit behind several of them.

Tax signals that turn into personal liability

This is the section a European owner most often underestimates. In the US, some unpaid business taxes follow the people who run the company, and an LLC does not stop them.

Payroll tax deposits

Income tax withheld from employees and their share of social security and Medicare tax are held in trust for the government. When a company is short of cash, the temptation is to pay staff and suppliers first and the IRS later. The IRS charges a failure to deposit penalty on late deposits: 2 percent of the unpaid deposit if it is 1 to 5 calendar days late, 5 percent at 6 to 15 days, 10 percent after more than 15 days, and 15 percent if the deposit is still outstanding more than 10 days after the first IRS notice.

The larger danger is the trust fund recovery penalty in section 6672 of the Internal Revenue Code. A person who is responsible for collecting and paying over these taxes and willfully fails to do so can be held personally liable for a penalty equal to the total amount of the tax. That can be the managing member, a director or the person who signs the checks. A late payroll deposit is therefore the moment to get help. Our overview of payroll taxes in the US explains how the deposits work.

State filings

Texas is a good example of how a state reacts. If a company's franchise tax account is not current, the Comptroller mails a notice of intent to forfeit the right to transact business. After forfeiture, the company is generally denied the right to sue or defend itself in a Texas court, the forfeiture shows on the Comptroller's public website, the registration with the Secretary of State is forfeited, and each officer, director, member or owner can become liable for certain debts of the company. This happens for a missed report even when no tax is due; our guide to the Texas franchise tax shows which report every company files by May 15.

IRS letters

An unopened letter from the IRS is a signal in itself. Notices come with deadlines, and the options shrink after each one. If letters to your US address are not reaching you in Europe, fix the mail route before anything else; our page on what to do when you get an IRS notice walks through the common ones.

Signals specific to a company run from Europe

Foreign-owned US companies fail for the same reasons as domestic ones, plus a few of their own. These are the ones we see most often:

1. The US company is a cost center nobody owns. It was set up to serve the parent's customers, nobody in the US has profit responsibility, and invoices between parent and subsidiary are written once a year to make the books balance. When the parent has a weak year, the US arm is cut without anyone knowing whether it worked.
2. Personal and business money mix. The owner pays company bills from a European card, or the company pays the owner's US rent. Apart from the bookkeeping mess, mixing funds is one of the facts a court looks at when a creditor asks to hold the owner personally liable. Our page on protecting the LLC's liability shield explains what keeps the shield intact.
3. The annual compliance calendar slips. A missed federal information return, a lapsed registered agent, an annual report that never got filed. Each one is small; together they tell you that nobody is running the company day to day. The list of annual LLC obligations is the checklist we use.
4. The bank starts asking questions. A US bank that requests updated ownership documents, asks about unusual transfers or announces that it will close the account is often reacting to a pattern in your account. Take the request seriously and answer it completely.
5. Time zones replace management. Decisions wait until European morning, customers wait until the next US business day, and slowly the company becomes known as the slow one. That reputation is a failure signal even when the numbers still look fine.

A monthly review that takes one hour

You do not need a dashboard with forty metrics. These eight lines, reviewed every month with your US bookkeeper or controller, catch almost every problem early.

The thresholds are our working rules, not law. Adjust them to your business, but write them down, because a threshold you decided on in a calm month is easier to respect in a bad one.

When the signals are red: the options

Seeing the signals is half the work. The other half is choosing a response while you still have choices.

• Fix and cut. Most companies with early signals usually need lower costs and a sharper offer. Renegotiate the lease, drop the unprofitable product line, talk to the large late payer. Do it in the first month you see the signal.
• Refinance or recapitalize. New money from the parent or an investor makes sense only when you can say what changes with it. Money that just buys time usually buys three expensive months.
• Sell the business or its customer base. A US company with real customers and clean books has value to a competitor, even when it does not work for you. Clean books are the condition; a buyer will not pay for numbers they cannot verify.
• Wind down in order. Paying employees and taxes first, filing final returns, and then formally closing the company with the state is far better than walking away. A company that simply stops keeps accruing state fees and filing obligations. Our guide to closing a US company lists the steps.
• Restructure in court. When debts cannot be paid and the business is still worth saving, chapter 11 of the Bankruptcy Code includes a streamlined track for small business debtors, known as subchapter V. That is a decision for bankruptcy counsel, and the earlier they see the numbers, the more options remain.

Whatever you choose, keep paying the trust fund taxes. They are the debt that follows you personally, and they are the one creditor you cannot negotiate with in the same way as a landlord or a supplier.

How we look at a company in trouble

When a European owner calls us because something feels wrong in the US company, we start with three questions. Are the books current to the last month? Are all payroll and sales tax filings and payments up to date? Is there anything from the IRS or a state that has not been answered? If the answer to all three is yes, the problem is commercial and you have time to fix it. If one of them is no, that is where we start, because those are the problems that grow on their own.

Most of the companies we see in this situation are not doomed. They were run with too little information for too long. Clean monthly numbers and a compliance calendar that somebody owns turn a vague worry into a list of decisions, and a list of decisions is something a good owner can work through.