After financial failures people always ask themselves, could we have seen this coming? Is there anything we could have done to prevent it? The answer is not universal as it is impossible to come up with one solution for all the reasons a company fails since everything depends on exactly what is the issue that isn’t working properly. However, something that we can agree on is that no matter which strategies is used to save an organization, it will always work best if it is introduced early on before you start reacting to what is happening instead of being proactive towards adversity.
There are a number of signs that can give some insight into what is happening or at least to let you know that they company isn’t doing well. Red flags can be found in financial statements for example, but there are other signs that are less obvious, and that can paint a picture of what is truly going on.
In most cases, the help of outside professionals is necessary to accurately pinpoint the source of financial woes, but that doesn’t mean that you cannot get ahead and properly gauge if this is something that can easily be handled, or if the help of a professional is needed in order to better understand the situation and take the appropriate actions in order to make corrections and put strategies in place.
Today, here in Suzzanne Uhland’s Blog, we want to take a look at some of the most general signs that you can identify easily when a company may be going through some financial distress in order to make corrections early on or at least be prepared for what is happening and adjust accordingly.
Sometimes companies fail to realize that are some customers that simply aren’t worth having. It is true that customers are what feed the company and that without them it would be impossible to exist. However, not every customer falls under that category unfortunately and that is why you have to seriously take a look and see if keeping a customer is forcing you to negotiate prices in ways that simply do not cover your costs or that the time that they make you spend on them is putting too much demand on your operation. Simply let them go and realize that no matter what they are simply not worth it. Companies that are struggling have a tendency to hold on to these types of customers without realizing that they are more detrimental than beneficial.
Poorly prepared and inaccurate financial statements
There is nothing that can say more about a company that their financial statements. Cash flow statements, for example, are the first places where one can look for trouble, as cash payments exceed cash income, then one can say they are dealing with a negative cash flow problem. This is itself shows a logical problem with the company, because eventually the bank’s funds will start to run low and financial trouble is just around the corner. Negative cash flow can happen even if you think the company is having great sales, because there is a delay to consider, from the money coming in and the payments that have to be made to creditors right away. Accounts payable may grow at a faster rate than accounts receivable and inventory, something that may make the working capital become negative. Another mistake that companies make is that they carry old inventory on their books at inflated values, something that wrongly hides the true financial situation of the company.
Misunderstanding of costs
Failing companies commonly do not understand how to calculate their costs. Entrepreneurs often believe that they can make up losses in volume. Companies without this information cannot make a decision as to which products must be raised in price or which services are boosting their bottom line. A thorough understanding of production costs is absolutely necessary in order to make proper adjustments and failing to understand this factor will surely lead any organization towards financial turmoil.
Foggy chain of command
Just like in any military structure, the chain of command and distribution of responsibilities is paramount to the success of any operation. If people aren’t clear about their responsibility you cannot hold them accountable for their shortcomings and when a position isn’t clearly explained, then those responsibilities will fall under a limbo where nobody will take care of them and everyone will simply believe that if they are ignored, they’ll go away. No group, company or organization can properly operate unless everyone is aware of their responsibilities and fully understands how they impact the overall functionality of the company. That is something easy to avoid, as it only takes training and informing members of the organization how important their roles are and how they are part of the great fabric of what the company is a whole.
* Featured Image courtesy of Pixabay at Pexels.com