Face up to the situation as soon as possible and be transparent about the struggle. That way, any decision to take on additional risk in an effort to turn things around will have better chances of being well received and supported by all key stakeholders. Top managers and lenders will be more willing to support the effort.
There are several stages of business distress, all of them presenting slightly different challenges for the management of a business.
Early warnings
When business distress is approaching, many warning signs may be overlooked or considered insignificant. If you recognise the early signs and take them seriously, you may be able to find an opportunity to transform your business.
Early indicators include:
- liquidity issues
- overdrafts
- unscheduled stretches in payables
All of these may be early indications of distress.
Then there are more operational indicators, such as:
- excessive or unplanned overtime
- missed shipments
- key customers going to other suppliers
- growing employee turnover
- deteriorating quality of production or services
Warning signs can also result from unprofitable products, underpriced new products or increasing costs.
No matter what the causes, you should notice the negative signals as soon as possible. Try to uncover the roots of the issue and address them before your business reaches a more serious level of distress.
At the first level of problems, there is time to reassess strategic positions and business plans. Stakeholders are still much more likely to accept any actions you propose. The goal here is to preserve and drive value, according to an article on the cfo.com website.
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