Guide to Financial Survival

Symptoms

• Ill-advised strategic decisions – too big and too rapid expansion, overdiversification, and the failure to invest profitably and sufficiently
• Marketing failures – lack of customer and product focus, poor product quality, poor matches between sourcing and selling, and ineffective pricing structures.
• Inadequate financial management – excessive leverage; lack of proper performance measures; accounting, information, and control systems that don’t supply important data quickly and effectively; and poor management of daily cash flows

Causes

External

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• Business cycles
  
• Market shifts
  
  Internal

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• General management capability
  
• Poor or declining margins
  
• Indecisiveness
  
• Strategy
  • Need for critical mass and market share
    
  • Overexpansion
    
  • Overdiversification
    
  • Under Investment
• Marketing
  • Lack of customer product focus
    
  • Lack of customer profitability analysis
    
  • Inappropriate pricing
    
  • Poor product quality
• Financial Management
  • High leverage
    
  • Need for appropriate performance measures
    
  • Deficient accounting, control and information systems
    
  • Lack of cash-flow management

Remedial and Recovery Actions

Short-term Remedy
- Move from negative to neutral or positive cash flow

Long-term Remedies
- Refocus on core strengths
- Redeploy assets to support this position
- Develop control systems to monitor the progress of the strategy
- Install incentive and compensation systems that reinforce strategic direction

Early Warning Signs

- Management fails to listen to warning signs and believes only its own rhetoric

- The management team breaks down. People leave and the remaining employees concentrate on their own agendas. Common purpose, functions, method, and direction dissolve.

- Priorities and disordered because management makes poor choices or no choices at all.

- Form prevails over content as people fail to achieve desired results.

- Management has a poor command of key financial and non-financial numbers (ie. KPIs) and what they mean to the business. Reports may be too complex, mismatched to the requirements of the business, ignored, or late.

- Management makes misrepresentations to the outside world.

- Customer needs cease to dominate.