Much like you would conduct asbestos testing before renovating an older style building, you must also test your business to ensure it is safe.
Even the most successful businesses face distress at some point. It could be that some early signs of issues were ignored or a specific strategy did not work. Distress no matter how extreme it may seem is not the end of the business. In addition to being able to recognize an upcoming disaster, it’s good to learn what to look out for and solutions in such circumstances.
No Accurate Financial Statements
Financial statements should be accurate in every business. The true financial health of an organization should be clear. This should be seen as it is, meaning that the statements should be updated. If the finance team struggles to make this happen, then the organization is heading to distress.
No Clear Responsibilities
I every business, everyone has a role to play. It’s working as a team that fuels success. It’s better when everyone understands what is expected of them. If this is not done, it is highly likely that there are upcoming issues. An organizational chart will be of significant effect in this.
Not Emphasizing on Cash Flow
One of the major causes of distress in businesses is losing or not making money. It could be due to poor decision making or poor investments. Cash is critical in every business and everything about it should be emphasized. Proper cash flow management should be put in place to see that besides the business making money, the income is spent wisely. Basically, one should keep track of cash.
A High Employee Turnaround
When there is a huge employee turnaround, it is highly likely that the company will be in distress. An organization should have competent and skilled employees and ensure that it holds on to them. If there are a lot of resignations and firing, the organization will be training new employees from time to time. This drags progress and it’s a waste of resources.
When an organization starts delaying payments to creditors, it is a sign of distress. They ask for extended days to settle payments hoping that some cash would be coming in. The more the days are extended, the more risk there is for suppliers and partners pulling out. This is not good for the business.
Regardless of the size, any business can undergo distress. Not being able to generate accurate financial statements, high employee turnaround and employees having no clear responsibilities are signs of distress in businesses.