Signs of a Troubled Business

Signs of a Troubled Business

A company may require the services of a turnaround specialist for many reasons. Here are the most common signs of trouble. In most cases a business will display more than one of these signs:

Market lag

Changes in the marketplace have bypassed a company, leaving it with sagging sales and lost market share. For some, the deficiency is technology; their equipment has become obsolete. For others, the problem lies in sales and marketing; their products or services slide into obsolescence because the company hasn’t kept pace with the needs of the marketplace.

Lack of operating controls

Managing a company without adequate reporting mechanisms is a bit like flying an airplane without an instrument control panel. If management is making decisions on old or inaccurate information, the company can easily head in the wrong direction.

Over diversification

Today many businesses feel the pressure to diversify in order to reduce risk. However, too much diversification may cause them to spread themselves too thin. As a result, they become even more vulnerable to the competition.

Explosive growth

Companies are sometimes tempted to add value by engineering a growth spurt. However, a company cannot expand its way out of trouble. Growth often carries a very high price tag and leveraging a company to such a degree means that management must operate with little or no margin for error.

Family vs. business matters

Sibling rivalry has ruined many privately held companies. Deciding which relative or which of their offspring should run the business after retirement or death can be one of the most difficult challenges a privately held business owner can face. If the decision is based on emotion (love or guilt) rather than sound business judgment, trouble can soon follow. Divorce can also shatter a business, leaving it in fragments. Nepotism can cause bright, skilful managers who aren’t part of the inner circle to take their talents elsewhere.

Operating without a business plan

Surprisingly, a number of growing companies operate without a business plan. Armed with 15 or 20 years in the business, management tries to operate by the seat of its pants. Their plan may change overnight because it is based on their own “feel” for the market. In other cases the business plan exists in everyone’s head rather than in writing. The result is that plans are carried out according to individual interpretation.

Ineffective management style

The president and founder of a company may be unable to delegate authority. No decision, big or small, can be made without his blessing. As a result, the rest of the management staff is without solid experience or any feeling of ownership. If the president suddenly dies or becomes incapacitated, the whole company is in danger of collapse.

The precarious customer base

Few businesses have the luxury of determining the exact proportions of their customer base. Nonetheless, some companies do put too many eggs in one basket. If a manufacturer selling to large retail chains has two customers who represent 60 percent of the business, the company is obviously vulnerable. The loss of just one customer could put hundreds out of work and send the business into bankruptcy.

Overrunning the people capacity

If a business is a success at $5 million a year, it could become a dismal failure at $10 million a year The reason is that the personnel may not be able to work successfully at the new level. For example, managing engineering operations for a company with two plants is very different from managing it for a 12-plant company. The same challenge applies to others in key positions in marketing, sales, operations and manufacturing. A company can overrun its ability to manage.

Poor lender relationships

Some companies develop an adversary relationship with their financial lending institution leading to financial difficulties and cashflow problems. Fearing that their loan or loans may be in jeopardy, they attempt to hide financial information from the bank. Phone calls are not returned. Reports stop being filed. Since money is the lifeblood of almost any business, bank debts and this kind of lender relationship only leads to more trouble.