Nine Early Warning Signs of a Troubled Company

A good reputation and impressive sales figures may mask the ultimate fate of a company that is headed for trouble. Beneath all the glitter, here are some early warning signs to watch out for:

1. The One Man Show
The company depends too much on one person. Whether a benevolent father figure or a hard-nosed dictator, this Type A personality controls everything. No decision, big or small, can be made without the boss’s blessing. Growth, creativity and initiative re-snuffed out.
Acid Test: Does the company allow key personnel to grow in their jobs and make key decisions?

2. No Succession … No Success
The company is operating without a succession plan. If this is the case, the business is only a heartbeat away from financial chaos. If the president dies suddenly, no one has been trained to step up and take charge.
Acid Test: Is someone being groomed to replace the president?

3. High Profit/Low Tech
Profits aren’t being plowed back into technology. The company may be tempted by The Quick Profits Trap using old machines to death because they’re paid for and pocketing the money that should be reinvested in new hardware.
Acid Test: How does the company’s hardware compare with that of its chief competition?

4. The Giant Customer Trap
The company is too dependent on a single customer. Many companies have fallen victim to the “Giant Customer Trap” … one customer who has 70 or 80 percent of their business. Putting too many eggs into one basket is risky.
Acid Test: Would this company survive if it lost its biggest customer?

5. Operating On Old News
Information systems are inadequate. Some companies are not able to give an accurate accounting of sales and earnings until the books close for the quarter. Result: a four or
five month time lag before a problem can be spotted.
Acid Test: Does the company have an accurate financial snapshot of its operations on a monthly basis?

6. Touring without a Roadmap
The company is operating without a business plan. In other words, it’s flying by the seat of its pants. Some presidents insist the plan is in their heads. Others simply lose their way trying to invent new business plans. In their attempt to grow, adapt, and move ahead, they somehow forget what their core business is.
Acid Test: Does the company have a written business plan? If so, is it still valid?

7. Banking Blues
The company suffers from a poor lender relationship. Many business owners clam up as soon as there is bad news, or they make elaborate attempts to hide it. The result is an adversarial relationship with the banker.
Acid Test: Does the company communicate regularly with its lender?

8. Hazardous Growth
The company has expanded so quickly it has outrun its ability to manage itself. Warning: Growth can be hazardous to a company’s health. Many firms allow growth to simply over-run their information systems with no controls in place.
Acid Test: What rate of growth is acceptable to the company?

9. The Change Factor
The company cannot adapt well to change. The company clings to traditional ways of doing business, despite signals from customers that the market is changing.
Acid Test: How has the company changed over the past year or so?