Insights

Key Signs To Warn You That Your Business Is In Trouble


As turnaround and profit improvement specialists, we regularly see evidence of companies being sideswiped by changes out of left field while they are concentrating on the main game.

Often by the time many businesses realise that the problem is not a temporary one that will disappear next month, and start to work on the problem, it’s too late.

Why? They don’t receive monthly financial statements and they don’t have other information systems in place to monitor the three or four major issues for operating a business (such as sales pipeline/booked sales, gross margins being achieved, collections and cash flow). Any delay in monitoring and acting on these signs causes serious damage to earnings and future business viability.

Key warning signs

So what should you, as a business owner, do? Keep an eye on your business to avoid trouble – any combination of these key warning signs should set alarm bells ringing:

  • Sales signs

Watch for sales and/or the sales pipeline reducing or becoming static, and also for excess inventory/stock and customer concentration issues (if a major one goes “belly up” is that the end for your business?).

  • Gross margin signs

It could spell trouble if gross margins are reducing or static, or you have negative earnings trends.

  • Cash flow signs

Warning bells should ring if working capital growth outstrips sales growth, creditor payments are being stretched, cash flow predictions show a looming cash crisis, formal payment plans for creditors are being made, you have problems obtaining finance or there’s an inability to pay dividends, ATO and superannuation arrears.

  • Collection concerns

Keep an eye out for signs such as slow debtor collections or litigation in relation to product/service quality.

Other signs include:

  • Budget and cash flow  are not being compared to actual
  • No control over overheads
  • Reported profits are good but cashflow is always tight
  • Your accountant or CFO has been abused for bring the bad news on profits, cashflow  etc so the accounts are given to you without discussion
  • Financial covenant breaches
  • Industry consolidation causing greater competition
  • No clear strategy that the management team endorses as its own
  • Government intervention with new taxes
  • Deferring expansion plans
  • A big new project takes all management energy
  • Post merger integration issues
  • Senior management turnover and staff unrest
  • Inappropriate use of finance facilities
  • A strong new competitor is entering your marketplace
  • A prevalence of directors’ toys (nice car/aeroplane/boats etc)
  • The entrepreneur  who set up the business, or increased its size substantially, will not let go
  • The children who inherited the business do not have the skills or interest in helping it grow

As you can see, it’s not rocket science to watch for these signs. The secret is not to wait too long to act on these signs – by calling in the experts. The competent business owner will be noting the signs and when one or more are not resolved by using actions which have worked in the past, it is time to call in the turnaround experts.

Make sure you talk to someone with a proven track record of turning around troubled companies. A good first port of call would be advisors who are members of the Australian Turnaround Management Association (www.turnaround.org.au).

In my next post, I’ll step you through the things turnaround experts look for to help us decide if we can restructure a business to save it.

Vantage Performance is a leader in sustainable business improvement, winning national recognition in 2008, 2009, 2010, 2011 and 2012.

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Call Michael Fingland Email View Michael Fingland on LinkedIn

Michael Fingland

My philosophy is that there is always a way to solve a crisis, as long as you’re engaged early enough.

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Andrew Birch

I believe that clear strategies and organisational alignment are fundamental for long-term business viability.