Tweet

Danger Signals of a Business in Trouble

Written by: Dan Lacy

Article Overview: Businesses throw off signs of stress much like humans do, so when you start to see these signs in a your business or a competitor, it is time to take action - don't wait.

Danger Signals of a Business in Trouble

During the bleak days of the Depression, an aggressive politician from New York named Franklin Roosevelt make a bold promise that his administration would put "two chickens in every pot and a car in every garage." As it turned out, this was one of the few times in history when a political exaggeration was actually an economic understatement. Today poultry is so inexpensive that it is the most common meat used in pet food. And the automobile has become such a fixture in the American home that owning just one is a handicap rather than a privilege. In fact, we have such an innate understanding of the internal combustion engine that most of us have a rough idea of how it works and why it sometimes doesn't.

Unfortunately, many business people have not come quite as far since the Depression in their ability to discern what makes a company or organization work and what needs to be done to ensure its survival. There are basically nine "danger signals" that indicate the strength and viability of a business is deteriorating:

1. Declining gross income, combined with operating losses. In most instances, declining sales will not be targeted as a problem until operating losses deplete cash reserves. Normally operating costs will remain high and not be adjusted as sales decline. This creates the operating losses that eat up cash reserves.

2. The absence of an operating plan to guide the company. Most managers do not use a carefully crafted planning procedure to create an on-going validation system. If a planning document exists, it is often shelved and forgotten as day-to-day concerns take precedence over future goals. When this happens, management has little or nothing to measure itself against and is oblivious to hidden dangers.

3. Breakdown in communications between upper management and the labor force. Failure to communicate vertically creates a situation where upper management cannot identify conflicts that exist in the on-going operation of the organization.

4. Inadequate cash flow. The ability to generate cash flow is the key ingredient in a successful business operation. Without adequate cash flow, an organization is doomed to failure. While it is normal for most organizations to have seasonal fluctuations, balancing these adjustments is critical for the survival of any organization.

5. Inability to convert accounts receivable to cash promptly. The slow collection process of accounts receivable can be a danger signal that a poor job of screening accounts and granting credit has taken place.

6. Inability to convert inventory to cash promptly. A slow down in inventory may signal a problem in the quality of products shipped.

7. Cash tied-up in nonproductive assets. Investing heavily in a new office building, equipment and personnel without careful planning can be a nonproductive use of assets and can destroy a company.

8. Amounts owed to vendors. When an organization is unable to meet the payment terms of their vendors, not only does a serious cash-flow situation exist, the future credibility of the company is in doubt. Long-term business success depends on the goodwill a company is able to generate with its creditors.

9. Low employee morale. Most employees truly want their organization to be successful. When a company is without solid direction, morale declines and with it goes productivity.

In today's economic climate, if any of these ring true with your business, it is time to take swift action.

Related Articles
  OVERCOMING STRESS
  Ready, Set . . . GOALS!
  Video Splitter: Replication of video signals on multiple displays in real time
  Buying a franchise what to consider
  HDMI Splitter: Relays Audio and Video over a single cable

Article Tags: bleak days, bold promise, cash reserves, chickens, danger signals, exaggeration, franklin roosevelt, gross income, handicap, internal combustion engine, nbsp nbsp nbsp nbsp nbsp, organization work, pet food, politician, poultry, precedence, rough idea, understatement, validation system, viability



Related Forum Posts
My entry - 1. The Best Business Books Ever: The 100 Most Influential Business Books You'll Never Have Time to Read - this is a fascinating book about the history of Business theory, and I'd recommend it to anybody. 2. The Big Book of Small Business: You Don't Have to Run Your Business by the Seat of Your Pants, by Tom Gegax. Ditto. 3. PADI: The Business of Diving Book Okay, so this book won't be of use to anyone who doesn't want to start a scuba store, but I did, and this book was of course invaluable to me in reaching that goal.
Re: How did we Live before Electricity - You are right Tim, we are spoiled today with the convenience products we have available.Trouble is once you get used to having these things, it becomes very difficult to imagine life without them. Our ancestors never had them in the first place, so they accepted what they had as they never knew anything different. MichelleJ
Re: How do you budget your life? - Good advice David and something that all parents should teach their children by example from a very early age. Trouble is that many people know they need to budget and save, but they have no idea about how to do it. Like Robert Kiyosaki says, financial intelligence should be taught in school. MichelleJ
Exclusive: Interview with Results - Hi Forum Members, I'm helping start up a Business Coaching and Consulting company here in Toronto, Ontario, Canada (a Subsidiary of RSC Business in Los Angeles). As a Research and Development Intern I am required to practice my listening and interview skills by surveying Small and Medium Businesses on thier Business. This Survey is designed by RSC Business to also assist the Business being interviewed more insight into their own business. I am looking to interview about 30 businesses across North America over the span of 3 months. At the end of these interviews I will be publishing a report of the results and they will be made available for free to the Interviewees. The Report data will include responses from a minimum of 100 interviews. I would like to extend this opportunity to members of the Forum. If you would like to have this short 20-30 minute interview conducted on your Business and you reside in North America please send me an email or PM. Please contact me at andy[at]jvprosperity[dot]com to arrange our interview and to get free access to the results when they are published.
Re: HOw to market a B2B consulting company - [quote="zohahunt77":428owzbi]Hi, I was wondering if anyone can tell me the difference between B2B and B2C. I don’t know about b2b marketing but I have done marketing so know things about it. I will suggest you to take online services which will spread your business all over web network. Online marketing is the best way to market any business.[/quote:428owzbi] B2B = Business to Business - You are marketing to other businesses. B2C = Business to Consumer - You are marketing to consumers.


Share this article with your friends. Fund someone's dream.

Leave a comment below or share on the left and you'll help support entrepreneurs in Africa through our partnership with Kiva. Over $50,000 raised and counting - Please keep sharing! Learn more.

Tweet

Newsletter

Get advice & tips from famous business
owners, new articles by entrepreneur
experts, my latest website updates, &
special sneak peaks at what's to come!

Name:
Email:

Popular Articles

Business Coach Explains To You How To Add Value

Stress: What Causes It and How To Deal With It

Five Ways to Show Honest Appreciation

Suggestions

Email us your ideas on how to make our
website more valuable! Thank you Sharon
from Toronto Salsa Lessons / Classes for
your suggestions to make the newsletter
look like the website and profile younger
entrepreneurs like Jennifer Lopez.