Based on our experience and a study on underperforming companies we performed last year we were able to grasp the importance of identifying the early signs of distress. The faster a problem is identified, generally the better chance for a successful turnaround. Time is generally not in your favour when facing distress and our experiences at large shows that management and boards wait too long to act decisively. This minimises your available options to get out this position and often insolvency or even full bankruptcy becomes unavoidable.
Eight Advsiory would like to share with you their insights on how to anticipate a situation of underperformance and how to identify the early signs of distress.
Top 3 Financial Indicators
- Financial Results
- Cash Flow
In situations of distress, financial indicators remain the most widely consulted. The indicators are classic: Turnover, Financial Results and Cash Flow.
With regards to cash flow, the financial monitoring of customers and suppliers is a key approach to prevent situations of underperformance. Studies have shown that 60% of companies who have experienced cash alerts state that they do not regularly monitor customer and supplier payments. Is this due to a lack of time or tools? Is it due to complex reporting within the company, are some of these alerts not coming through to the appropriate management level?
Top 3 Operational Indicators
- Human Resources / High staff turnover
- Monitoring of disputes and accidents
- Problems in production or supply chain
Steering and forecasting operational indicators and monitoring your operations is essential in anticipating situations of underperformance, as these indicators are able to detect an unusual situation prior to the financial indicators. The main operational indicators are human resources, monitoring of disputes and accidents, and finally production or supply chain failures.
As the current crisis is leading a large number of companies into a state of financial and operational underperformance, correctly identifying the indicators that show you your business is in distress is only the first step in finding an appropriate solution. Companies must now focus on maintaining or improving their profitability, ensure the agility of their organisation to adapt quickly and resolutely to the new situation as well ensuring swift execution of transformation/turnaround plans.