25 Scenario Checklist to Identify If Your Business is in Trouble

As a CPA I view it as my job to help you identify when your business is in trouble. Unfortunately, by the time that I'm engaged there's usually already a pretty big problem in your business. I thought that I'd take the time to share a quick yes or no checklist that I go through to identify whether or not a business is in trouble. If you can't answer these scenarios well….that may be a problem in itself. The score at the bottom will tell you whether or not you have a serious problem or potential for a serious problem in your business. You can use this list on a monthly basis (I'm a big fan of looking at a rolling twelve months) to immediately spot potential negative trends.

1. My sales are declining in total or per unit.
2. My inventory levels are going up.
3. My gross profit margin is going down.
4. It's taking longer for my customers to pay me.
5. My operating expenses as a percentage of sales are increasing.
6. My interest expenses are increasing at a faster rate than my sales.
7. I have operating losses.
8. I have negative cash flow from operations.
9. I have a working capital deficit.
10. I have projected losses or negative cash flow.
11. My Z-Score is near or below 1.23 (manufacturer) or 1.1 (general business).
12. It's taking me longer to pay my bills.
13. I've had to convert some payables to long term notes.
14. I am personally guaranteeing most all debt.
15. I can't get normal trade credit.
16. I am in default on a loan covenant.
17. I'm not making tax payments on time.
18. I am seeking new or unusual methods of financing.
19. All my assets are pledged as collateral.
20. I'm getting rid of assets that still generate profitable income.
21. I am losing key employees.
22. I am losing key customers.
23. I am in a troubled industry.
24. I am starting to barter more for goods and services.
25. My traditional suppliers aren't working with me anymore.

Scale:

If you answered 'No' to more than 20 of these scenarios your business is in pretty good shape. If you answered 'No' to more than 15 of these scenarios you've got issues in your business but you'll probably manage through them. If you answered 'No' to fewer than 15 of these scenarios you are either in or will imminently face serious problems in your business. See our posts at www.makeanimpactcpas.com for some ideas for solving some of these problems.