Whatever the circumstances, all companies are susceptible to uncertainties due to the economic context, to the evolution of technologies and to multiple unforeseen events. Detecting the difficulties of your business is not always easy. The most important thing is to know how to anticipate periods of difficulty in order to redress the bar before the future of the company is compromised. How do you know when a business is going through a crisis?
Set up a management dashboard
In order to better and quickly visualize the situation of a company, a dashboard management must be in place. This tool will make it possible to monitor the evolution of all the important factors on a daily basis. It is an essential instrument for any manager, because it allows to measure the performance of the company. Easy to set up and use, this tool provides a consistent snapshot of the situation.
The dashboard must be made up of a limited number of indicators. These must be relevant and adapted to the context of the company. To prevent the economic and financial difficulties of a company, several indicators and ratios can be used. It is important to put in place all the elements that give a detailed look at the current state of the business.
management must include:
- the order book status which allows to see the future activity of the company
- the payment period which measures the level of trade receivables
- the supplier account in order to measure the company’s receivables from its suppliers
- changes in turnover to measure the company’s activity.
- the margin which measures the profitability of the company
- the rate of added value: it makes it possible to assess the efficiency or performance of the company by measuring the wealth it has created
- working capital which measures the company’s ability to finance its operations
- the working capital requirement which measures the need for funds necessary for the short-term operation of the business
- the cash flow requirement in order to measure the company’s cash flow level.
If several of these indicators are negative, the manager of the company knows that he must do everything to raise the bar. Measures must be planned for this purpose in order to limit the damage.
Pay attention to other signs
In addition to the management dashboard, several warning signs can and should alert the business manager. For example, if bad debts accumulate, the situation should not be allowed to deteriorate at the risk of straining the company’s cash flow. You also have to be careful if the banker calls regularly to take stock. When the Payment period suppliers are lying down and some are demanding to be paid in cash, this is a sign that the cash flow is tight. Employees’ salaries paid late, orders that are lengthening must also alert the manager.
As soon as the company manager experiences difficulties in the management of his company, the manager can initiate a preventive and objective diagnostic process. This allows him to detect the origin of the difficulties and to be able to remedy them as quickly as possible.