5 Signs Your Company is in Trouble

Look out for these signs and rescue your business.

Certified turnaround professional Renee Fellman has over two decades of experience saving companies in distress. She has seen it all from companies that have no real actionable plan going forward to CEOs splurging the cash purchasing luxury items in spite of dwindling resources. In a bid to learn from the mistakes that others have made, we have asked Fellman to point out some of the most common mistakes that she has been privileged to see in her time.

Here are some of them:

1. Poor understanding and execution of financial statements

There wouldn’t be any competition in sports if there weren’t a way of keeping score. So it is incredible to see that a lot of companies run their businesses without keeping accurate financial statements or even understanding what it contains. There are companies out there where the controller doesn’t even know the difference between cost and accrual accounting. Another widespread mistake is using old inventory books at inflated values hiding the actual financial status of the company.

You have to ensure your financial statements are accurate and up to date. Otherwise, you are flying blind. It is best to have your statements no longer than five days after the month’s end.

2. Keeping bad customers

There comes a time where you just have to cut off customers that lose you money. These are customers who demand too much from you and negotiate prices that barely even cover your costs. Unfortunately, many companies out there are too desperate to cling on to revenue that they keep these customers on their books and this leads to doom.

Get rid of these customers and focus on the growth of your business

3. Examine your costs loosely

There is a running joke amongst turnaround experts, and it goes: “We’re losing money on every job,” the fellow concedes, “but we’ll make it up in volume.” According to Fellman, it is common to see companies that do not know how to evaluate their costs and don’t see the importance of doing so. Without this information, companies are in the dark as to which products or services are actually helping the bottom line and where prices need to be raised, or costs brought down. It is crucial to understand the cost. Do that or hire someone to do it for you.

4. Failing to assign staff responsibility

Without a clear hierarchy and organizational chart, businesses are bound to fail. Fellman relates the one time she worked with a company that was always in trouble with the FDA and this company had an organizational chart but when she asked the director of governmental compliance and the director of quality assurance who was in charge of ensuring FDA compliance, neither of them responded. Fellman proceeded to put one of them in charge, and they proceeded to pass their next FDA inspection.

There needs to be a laid out structure, and responsibilities need to be spelled out for companies to perform optimally.

5. Spending too much, saving less

When a company is on the verge of failing, and Fellman is called upon to save them, the first thing she does is calculate how long their cash reserves will last before she proceeds to draft plans that will ensure it doesn’t run out. “That may involve laying people off, but more often it means stopping unnecessary expenditures,” Fellman says. A lot of companies are guilty of spending money on very unnecessary things and too much on advertising that has no real impact.

In times of trouble, cash is the ultimate, so companies need to better prepare themselves for hard times by reviewing their expenditures and increasing savings.