Failing business: Warning signals
No health deteriorates overnight. Sure we have heard of cancer, liver and kidney failure – but there are always some signals. Ignore them, and you are dead. Literally.
Similarly are there some signals that you can pick up from a business that pre warn you about failure?
Well here a few that I remember from my consulting/ training days:
1. In ability to pay the statutory dues: this could be Service Tax, Income tax, TDS made from vendor/ employee payments. ….When you are running out of cash to make these payments, see what is going wrong asap.
2. You have some white elephant assets, but your top management refuses to part with those assets saying ‘these are strategic assets’.
3. Not paying salaries on time. After the government and the vendors, the salaries of own employees gets delayed….
4. Directors offering to differ their own salary…and that of the top management…
5. Customer complaints and employees attrition: the customers and employees who walk with their talent. When they go they cause two types of damages – they take a few more clients, and sometimes a lot more employees too.
6. Raising more money- but using it in working capital. This is actually increasing your total overall costs, because of the higher interest amounts. It could also be a signal of the avg. days outstanding.
more qualitative perhaps…but these are the financial warning bells that i could think of….
Santosh Prasad
Subra, Are you pointing towards King Fisher Airlines? All the signs are speaking loudly about KFA.
MangoMan
Hi Subra,
What’s the way to identify the point no. 1?
Any examples ? I mean not like Kingfisher case, when the whole world knows it.
Regards
subra
not unless you know somebody in the management, or u have your ears close to the ground. There have been times when as analyst we have picked cues from the union, paanwala outside the factory, banker, internal auditor, ITO, ….and of course competitors, vendors, etc.
the fun is single individuals buying 1000 shares of a company pretending they can do all this 🙂
krish
I am not sure these warning signals are meant to whom. In most of the cases, am surprised even employees would not be aware what is happening under the carpet until break out. I was speaking to friend who works in one pharma company and he is not aware that company is in red. We can understand the employees scneario of Sathyam, Deccan Chronicle and host of real estate companies.
Bala
The same happened with Subex, a Telecom product company in Bangalore. Its boss happens to be the chariman of NASSCOM product conclave or something.
MangoMan
Agree with you Subra, pity on being an individual investor, trying to do all this work while buying hundred shares (not even thousand).
At the same time, there have been some positive development in terms of collaborative platforms among value investing folks. Like blogs, discussion forums etc… It’s a very rich and educating (if you find the right one’s). I think people serious about investing can learn more in a month from books and these kind of platforms than what they can learn in a life time from watching business channels 🙂
Nagarajan
KFA is a classic example of an entreprenuer being successful in one line of business and a complete failure in another. Then again, I guess the business fundamentals should remain the same. Only goes to show 1+1 may not really be equal to 2?
Vasant Darji
i think its all about our thinks what we plan in business whats our main goal for achieve our business goal,currency,cryptocureency,management of market analysis,cryptocurrency capitalization market now in market for other kind of business in global world today, price of spend in business,market chart up or down ,market behaviour some of this subjects are related for success in business.