Most stressed businesses will display more than one of these signs of trouble:
- Management Style: A founder or an owner of a company can often find it difficult to delegate and some simply refuse to. All decisions, large or insignificant, cannot be made without this individual’s approval. This can result in the others within the management team fail to gain experience in making a decision or simply fell left out of the business.This can lead to a void in the leadership should the founder suddenly becomes incapacitated or die and the future of the entire compnay is in jeopardy.
- Diversification: Too much diversification may lead to spreading managerial, financial, and competitive resources spread too thin .The business may suffer loss of market share to better competition.
- The Financial Function: A company with large debt, restrictive covenants, and inadequate equity has to operate with little or no margin for error. Credit may be overextended, stocks are increasing, and fixed assets are not utilised efficiently. Management may think the only way is to attempt to grow the company out of its problems.
- Poor Banking Relationship: A weakened financial condition can lead to the company management becoming adversarial towards its lenders. A fear that loan and overdraft facilities may be in jeopardy, may attempt to hide or avoid providing financial information from its lenders. Communications deteriorate and telephone calls or emails from the bank are ignored.
This type of lender relationship only leads to more trouble and compounds the difficulty of managing a declining business.
- Poor Operating Controls: The company may be operating without proper reporting, accountability, and division of responsibility. Management decisions are based on incorrect, untimely, or inadequate information.
- Market Lag: Changes in the marketplace may result in the business being by-passed, leaving it with falling sales and declining market share. For some businesses new technology can mean their equipment or products and services can become obsolete.
- Rapid Growth: Concentration on fast growth by boosting sales often results in a failure to understand the effects of this type of growth on the capital investment to keep up with the incresaed capacity and the cash requirements to fund it.
Management and staff may not be trained or sufficiently skilled to work successfully at the higher level. Key positions need to be in filled in, marketing, sales, operations, and manufacturing. Some businesses grow beyond their ability to manage.
- Customer Base: The business may depend on a few big customers for most of its sales. If a business selling to large retail chains has two customers representing 50% of its business, that business is obviously is vulnerable to the financial condition of these two customers or the possibility of new suppliers displacing it. The loss of just one of these key customers could send the business into liquidation.
- Family Business: Sibling rivalry or a dispute between parents and children has ruined many privately held companies. Nepotism can cause intelligent, skilful staff who are outside the family to take their talents elsewhere.Family issues can be based on emotional issues and can result in the wrong business decisions, if not made on sound business principles.
- No Route Map: Some businesses often operate by intuition. The business plan exists in someone’s head rather than in writing. The result is that plans are carried out according to individual interpretation of a plan. Moreover, these plans are often not properly communicated to employees.