Recognizing and Responding to the   Early Warning Signs of a    Troubled Business    Georgia Society of CPA’s            ...
Debra PauliCorporate Financial Solutions, LLC Consultant, change management and adviser CPA, Certified Public Accountant...
Disclaimer The information contained in this presentation is only intended  for general purposes. It is not intended nor ...
Objective This discussion will enhance your  understanding of the signs of decline Discuss approaches to use with Client...
Topics to be discussed include:  Stages of Decline  Signs of Decline  Causes of Decline      How Should CPA address th...
How Decline DevelopsFirst Stage –         Period of incubation                 Warning signs go untreated                C...
Stages of Decline            1                        2                        3         Period of          Shortage of   ...
A viable core business consists of Proven product or service or a pipeline of    newer products ready for introduction; ...
Forces Affecting Business Success                     Internal                    External       Corporate Financial Sol...
External Forces    Economic Changes   Competitive or industry changes   Social Changes   Labor matters   Technologica...
Internal Forces Management Financial     Corporate Financial Solutions LLC   11
Signs of Decline        Management        Marketing        Operation        Financial      Corporate Financial Solutio...
Management Personnel Related Incompetent managers in key positions Incompetent credit and collection  department Rapid ...
ManagementControls Related Inadequate Insurance Inadequate Accounting Methods and Records Acquisition of unprofitable s...
Marketing Change in product demand Increase in competition Declining market share Improper Pricing Inadequate Sales ...
Operations Declining margins Continuing increase in overhead costs Obsolete production methods Excessive overhead expe...
Financial Insufficient Working Capital     Excessive inventories     Inadequate management of receivables and      paya...
Financial Over expansion without adequate  working capital Rapidly increasing debt, excess leverage Excess interest cha...
Causes of Decline Corporate Financial Solutions LLC   19
Internal Causes of Decline One man rule Lack of management depth Inbred, bureaucratic management Unbalanced top manage...
Principal Reasons forCorporate Decline Internal Causes                              70 % External Factors                 ...
Most Common Errors ofManagement Failure to respond to marketplace  changes Inadequate control over operations Overexpan...
Marketplace Failures Competitive changes Production/cost improvements Economic Changes Technological breakthroughs So...
Lack of Control Budgetary control problems Product costing problems Responsibility accounting problems Asset accountin...
Why Firms Fail Economic Factors 55.1%   Conditions or decisions resulting in     economic losses Financial Factors 36.0...
THANKS           Debra PauliCorporate Financial Solutions, LLC     www.corpfinsolve.com       Corporate Financial Solution...
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Recognizing the Signs of Business Decline

  1. 1. Recognizing and Responding to the Early Warning Signs of a Troubled Business  Georgia Society of CPA’s February 11, 2011 Corporate Financial Solutions LLC 1
  2. 2. Debra PauliCorporate Financial Solutions, LLC Consultant, change management and adviser CPA, Certified Public Accountant CTP, Certified Turnaround Professional designation CFF, Certified in Financial Forensics CVA, Certified Valuation Analyst Former CFO Former Controller of Multinational NYSE Company Conducted due diligence domestically and internationally Assessed businesses for lenders dpauli@corpfinsolve.com 404-625-1348 Corporate Financial Solutions LLC 2
  3. 3. Disclaimer The information contained in this presentation is only intended for general purposes. It is not intended nor should it be construed as either legal, accounting or business advice. The material may not be applicable for specific needs or circumstances and is not a substitute for consultation with qualified professionals. All rights reserved. No part of this work covered by the copyrights herein may be reproduced or copied in any form or by any means without the express permission of the presenter and Corporate Financial Solutions, LLC. Corporate Financial Solutions LLC 3
  4. 4. Objective This discussion will enhance your understanding of the signs of decline Discuss approaches to use with Client when these signs are identified Corporate Financial Solutions LLC 4
  5. 5. Topics to be discussed include:  Stages of Decline  Signs of Decline  Causes of Decline  How Should CPA address these causes with the owner? Corporate Financial Solutions LLC 5
  6. 6. How Decline DevelopsFirst Stage – Period of incubation Warning signs go untreated Corporate Financial Solutions LLC 6
  7. 7. Stages of Decline 1 2 3 Period of Shortage of Unable to Meet Incubation Cash for Maturing and Current Current Operations ObligationsCash Declining Losses but Survival Business Survival Not Threatened Position Threatened Imminent Danger of Failure Time Corporate Financial Solutions LLC 7
  8. 8. A viable core business consists of Proven product or service or a pipeline of newer products ready for introduction; Loyal customers or a steady influx of new customers Reliable source of materials and supplies Sufficient equipment to minimize short-term investment Cooperative workforce Corporate Financial Solutions LLC 8
  9. 9. Forces Affecting Business Success  Internal  External Corporate Financial Solutions LLC 9
  10. 10. External Forces Economic Changes Competitive or industry changes Social Changes Labor matters Technological changes Government Actions Regulations and legislative issues Corporate Financial Solutions LLC 10
  11. 11. Internal Forces Management Financial Corporate Financial Solutions LLC 11
  12. 12. Signs of Decline Management Marketing Operation Financial Corporate Financial Solutions LLC 12
  13. 13. Management Personnel Related Incompetent managers in key positions Incompetent credit and collection department Rapid turnover of people, especially middle ranks Corporate Financial Solutions LLC 13
  14. 14. ManagementControls Related Inadequate Insurance Inadequate Accounting Methods and Records Acquisition of unprofitable subsidiaries Sales mania for growth Over diversification Lack of operating controls Poor Information for management Corporate Financial Solutions LLC 14
  15. 15. Marketing Change in product demand Increase in competition Declining market share Improper Pricing Inadequate Sales Failures to keep pace with changes in marketplace Corporate Financial Solutions LLC 15
  16. 16. Operations Declining margins Continuing increase in overhead costs Obsolete production methods Excessive overhead expenses and operating costs Corporate Financial Solutions LLC 16
  17. 17. Financial Insufficient Working Capital  Excessive inventories  Inadequate management of receivables and payables Decline in reinvestment in plant, equipment and maintenance Over investment in fixed assets Corporate Financial Solutions LLC 17
  18. 18. Financial Over expansion without adequate working capital Rapidly increasing debt, excess leverage Excess interest charges on long-term debt Unbalanced Capital Structure Corporate Financial Solutions LLC 18
  19. 19. Causes of Decline Corporate Financial Solutions LLC 19
  20. 20. Internal Causes of Decline One man rule Lack of management depth Inbred, bureaucratic management Unbalanced top management team Ineffective, non-participative board of directors Dishonesty and fraud Corporate Financial Solutions LLC 20
  21. 21. Principal Reasons forCorporate Decline Internal Causes 70 % External Factors 21 Economic Factors 9 Corporate Financial Solutions LLC 21
  22. 22. Most Common Errors ofManagement Failure to respond to marketplace changes Inadequate control over operations Overexpansion Excessive leverage Corporate Financial Solutions LLC 22
  23. 23. Marketplace Failures Competitive changes Production/cost improvements Economic Changes Technological breakthroughs Social Change Corporate Financial Solutions LLC 23
  24. 24. Lack of Control Budgetary control problems Product costing problems Responsibility accounting problems Asset accounting problems Cash Flow Forecasting problems Corporate Financial Solutions LLC 24
  25. 25. Why Firms Fail Economic Factors 55.1%  Conditions or decisions resulting in economic losses Financial Factors 36.0%  Poor decisions regarding debt, working capital, liquidity resulting in failure to meet obligations Other factors 8.9%  Management neglect, fraud, disasters, loss of sole supplier, legal constraints Corporate Financial Solutions LLC 25
  26. 26. THANKS Debra PauliCorporate Financial Solutions, LLC www.corpfinsolve.com Corporate Financial Solutions LLC 26

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