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how do you diagnose troubles ?

how do you diagnose troubles ? - SOS.BIZ - Giuseppe De Giovanni

What are the warning signs of a business heading toward trouble? This is one of the most frequently asked questions of turnaround specialists. Trouble comes from a variety of causes. The obvious signals are rarely the root cause of the problem. Losing money, for example, is not the problem, but the result of other problems. The warning signs listed below are not all inclusive, but may provide some insight as to why the company is facing difficulty.


Signs relating to poor financial performance include:

  • Decrease in profit
  • Decrease in sales
  • Continued failure to meet bank loan covenants
  • Decrease in available cash

 

Signs connected with poor operational performance include:

  • Decrease in profit
  • Lack of both short and long term planning and forecasting
  • Quality control problems - increased returned goods and customer complaints
  • Late or slow delivery
  • Increase in fixed costs relative to revenues
  • Management and employee turnover
  • General employee dissatisfaction and performance
  • Employee layoffs
  • Declining revenues per employee
  • Trade credit difficulties and restrictions
  • Failure to take purchase and other cash discounts
  • Delay returning telephone calls
  • Delay in submitting financial statements to banks, lenders, and suppliers
  • Board of Directors resignations
  • Failure of Board of Directors to diligently exercise its oversight function
  • Return of the "retired" founder to a visible management position
  • Failure to adapt to new technologies

 

Signs associated with poor utilization of assets include:

  • Worsening cash position - reduced working capital
  • Decrease in quick asset ratio
  • Increase in the debt to equity ratio
  • Dwindling capital base
  • Declining asset turnover rate
  • Declining accounts receivable turnover rate
  • Deteriorating account receivable aging
  • Declining inventory turnover rate
  • Deteriorating account payable aging
  • Creeping loan balances reduced R&D expenditures
  • Changing accounting principles
  • Financing the purchase of fixed assets out of working capital
  • Overpaying for assets or business units
  • Acquisitions of or expansion into non-core related businesses or into businesses which cut into or compete with the core business

 

These signs are symptoms, not the problem. The signs are simply the evidence that a problem exists, and it is the problem rather than the symptom that must be identified and remedied.