Every business has its good days and its bad days. A distressed company usually shows signs of trouble which are reoccurring and not industry specific. If you recognize the warning signs below in your business or one that you know, acting promptly to identify and implement the right solution can help get the company back on the road to recovery.
10 Warning Signs:
1. Income statement related:
- Losses or lack of profitability
- Collecting A/R
- Steady rise in A/R on collecting outstanding debt and obligations
- Bad debt increasing
2. Balance sheet related:
- Dwindling cash, overdrafts and returned checks
- Selling assets to raise cash
- Inventory is up and sales are down
- Cash payments exceeding cash income. Accurate cash flow statements are critical to management, lenders and investors.
- Increasing debt
- Increasing debt to equity ratio
- Reducing or eliminating dividends
- Paying A/P – company bills are not being paid in a timely manner
- Current Ratio which is defined as current assets divided by current liabilities. A ratio greater than one indicates that a company has a high chance of being able to pay off its debt. Ratios less than one indicate that a company may not be able to pay off its debt.
3. Personnel related:
- Too many meetings behind closed doors. What is going on?
- Working longer hours to produce the same level of income
- Key personnel or senior leadership turnover.
- Continual staff replacement
- Hiring freezes
- No raises
- Bad employee – employer relations
- Bad management
4. Extravagant lifestyles of owner/principals that appears beyond their means
5. Delay in implementing approved projects without sufficient explanation
6. It is worth investigating that a change in outside auditor is not due to management’s resistance to the audit firm’s decision to disclose concerns or doubt about the company’s ability to continue as a going concern.
7. Unusual shift away from the company’s traditional strategy
8. Significant new competitor(s) in their market
9. Adverse legal action
10. Inability or unwillingness to comply with government regulation
Early recognition of these warning signs and acting promptly can often help save a business. If your business or one that you serve is in need of guidance or assessment of any of the aforementioned areas, please call us at 404-874-6244 or fill out the form below.
This article was written by D. Alan Najjar.