Seven Signs of Business Trouble And How To Recognize What They Mean

The Dangers of Conditioning

Some time ago an owner told me about his company’s problem. It seems they had a major customer that was not paying its bills. The cash shortfall was causing significant problems. Upon examination, this turned out to be one of their problems, but it was only the tip of the iceberg. The company was in trouble and didn’t know bad it was.

The officers were bright people with many years’ business experience. How could this have happened? There were two culprits: conditioning and fear.

Business people (like everyone else) are conditioned by past history and past success to operate in certain ways. When market conditions change, they sometimes miss critical clues (both because they don’t recognize new factors and because they aren’t looking for them). They are at a loss to explain why previously successful strategies and financial solutions no longer work.

Conditioning “blind sides” all of us, telling us from experience what we can, and can’t, do. In today’s constantly changing business environment, yesterday’s success is no assurance of success tomorrow.

When strategies don’t work, fear strikes. Successful past strategies suddenly let you down. Where do you turn? Where can you hide, or safely regroup? You are at risk. Are there no familiar signs to watch for?

The Seven Signs of Trouble

Financial analysts have identified seven indicators of company trouble that can alert you to possible problems before they become critical.

  1. Shortage of Working Capital — To assess your position, factor out cash shortages caused by seasonal cycles, and if working capital remains inadequate, there is probably a problem. Look for ways to generate more income.
  2. Restricted Trade Credit — Trade credit is often the cheapest form of financing, but when creditors pull back, it is a clear indicator that problems exist. How do you stand with your trade creditors?
  3. Constant Personnel Turnover — If people constantly choose to move on rather than cast their lot with your company, there is usually something wrong. Do you know your turnover rate?
  4. Over-Reliance on One Customer or Job — If any one-customer controls more than the equivalent of your gross profit, beware. What have you done to diversify your customer base lately?
  5. Failure to Hold Market Share when Markets Turn Down and/or Competition Intensifies — If you are experiencing a decline, realistic forecasting and fast adaptability may be required.
  6. Failure to Anticipate and Adapt to Changes in Legal or Regulatory Controls — Is there pending legislation that could hurt your company?
  7. Failure to Invest in the Company’s Future — Can you rely on past technologies and performances, or must you invest in new opportunities. Are you ready for tomorrow?

The company mentioned above has initiated an aggressive marketing campaign. They are working hard to improve their cash flow and profitability. They are struggling, but now they have a better handle on their problems and a better chance for the future. Are they watching the seven key indicators? You bet.

John Reddish  is a Vistage Associate and president of Advent Management International, Ltd. John works with leaders who want to master the issues of growth, transition and succession, both in developing strategies and in assisting with their implementation.

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