Signs of Trouble

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Author John Towler, Ph.D.

A common sense approach to business management and avoiding problems before they occur.

How do you know whether your firm is in trouble or not? This may sound like a stupid question, but you would be surprised at the number of managers and CEOs who never realize that they are in trouble until it's too late, There often are signs that trouble is brewing, but one of our common failings is that we tend to ignore these signs until something so serious occurs that we can't help but pay attention. So, here's a list of warning signals. Use it to give your company a checkup and to identify the problems.

• The first is losing money. This may be happening despite growing sales or revenues. You may think you are in a boom period, but at the end of the year, you are poorer than when you started.

• You are chronically short of cash. More and more, you are delaying payments to your suppliers asking for longer terms, borrowing from receivables or having trouble meeting payroll.

• You find it harder and harder to meet, let alone beat, the competition and your share of the market is diminishing.

• The company is deteriorating physically. The buildings need paint and attention, cleanliness is not what it should be, maintenance is poor and machines are repaired by cannibalizing parts.

• Morale is low, and there are more complaints and grievances than ever before. Pride and teamwork are things of the past and even you don't really look forward to going to work.

• Internal communications are either conspicuous by their absence or handled through a hyperactive grapevine.

• No rewards are being handed out to anyone, No one seems to be appreciated, encouraged or praised and a negative rather than a positive attitude prevails.

• The turnover rate is high. Too many good people are leaving and those at the top appear neither to care nor to be able to prevent it.

• Long standing issues are unresolved and ignored. Everyone knows about certain problems, but nothing is done about them.

• Some people are jockeying for power within the company and gathering followers, Political in fighting has become a way of life.

If your firm has one or more of these problems, it’s probably in trouble or headed for serious difficulties. What should be done? Here are 10 tips for stopping the rot and returning the firm to health.

Step 1. Control the finances. Take immediate steps to find out where the money is going and why. If you are the CEO, examine the financial statements yourself and seek the assistance of accountants who can help you pinpoint the problem areas. Next, get control of the cash and make sure it is only spent on those items that are absolutely necessary to the ongoing operation of the firm. Institute financial controls and monitor them to make sure they are being applied and applied ruthlessly.

Step 2. Diagnose the problems. This is easier said than done, especially if everyone has been turning a blind eye for some time, there are basically two ways to approach this, if you are able to take a fresh and unbiased view, go ahead and do this on your own or with the he5p of other people within the firm. However, it may be that you have all been trying to ignore the problems hoping they will go away. If this is the case, you are probably unable to face the facts and take the steps to correct them. A usual strategy here is to bring in an external consultant who cannot only do a proper analysis, but who can recommend solutions. This may be painful, for as Peter Drucker says, a good consultant is often an insultant in that he or she often asks embarrassing questions and points our problems even if you are part of them.

Step 3. Talk to your people. Before you start to offer solutions and give orders, check out your perceptions and involve others in figuring out not only what is wrong, but how to fix it, Gather as much data as possible and ask as many questions as you can. Be sure to talk to everyone associated with your business, customers, clients, suppliers, subcontractors, bankers, anyone who can shed light on the firm and its operation. Take steps to avoid just asking those people who will only tell you what they think you want to hear. This is the time forward questions and equally hard answers.

Step 4. Plan ahead. Before you start off in whatever seems to be the most promising direction, take time to create carefully thought out plan of action. Often this requires the assistance of an expert who can lead you and the other key members of your firm through a strategic planning process. This process is essential, but may take as long as twelve to eighteen months and involve weekend retreats and task forces. However, it is necessary in order to get everyone involved, committed and working towards a common goal. There are very few CEOs who can unilaterally legislate changes and enforce them without the cooperation and support of everyone else. Open discussions under the leadership of an unbiased outsider are usually a prerequisite to getting the real problems to surface.

Step 5. Take action. Once you have identified the problems and decided on a course of action, demonstrate your sincerity and determination by taking action immediately. Start with something that is both highly visible and significant. By doing so, you will be sending a clear and unmistakable message throughout the organization that remedies will be applied and applied now. This is essentially in order to build hope and morale.

Step 6. Concentrate on the positives. There must be many good things about your organization and there are undoubtedly some things that you are doing right. Avoid the tendency to concentrate on the negatives. Doing so only adds to the depression and low morale. Figure out what you are doing well and why they are happening. The trick here is to eliminate the negatives and do more of the positives.

Step 7. Find a leader. The process can fail at this point unless you assign the responsibility for the remedial process to someone who has the personality and experience to carry it off. This person will become the rallying point for the firm. But it is essential that he or she be given the power, mandate and time to make it happen.

Step 8. Improve cash flow. The best laid plans for improvement can also lead to failure if the patient dies before the cure can take effect. In other words, be sure that you can stay in business long enough to recover. Raise new cash, collect your receivables, reduce your inventory, sell nonproductive assets or even sell off successful branches or businesses to ensure your continued existence.

Step 9. Reestablish your reputation. Your problems won’t have been a secret in your industry and more people than you care to think about probably know you have had trouble. Make it a policy not to hide this issue, but to emphasize the fact that yes, you have had hard times but you have the problems licked and will be better than ever.

Step 10. Improve morale. This is one of the keys to turning around any organization. Open up those lines of communication; establish a formal communications system that will leave no room for a grapevine. Be enthusiastic, determined and optimistic. Your attitudes will be infectious and your model will be important for everyone else. If you are secretive, less than honest and lukewarm, none of the other nine steps will work.

John Towler is a Psychologist and the founder of Creative Organizational Design. Please send comments about this article to jtowler@creativeorgdesign.com. For more information, please contact us.

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