IV’E HAD IT FOT AGES DOCTOR BUT ITS STARTED CHANGING COLOUR!
SYMPTOMS OF FAILURE ARE IDENTIFIABLE, CAUSES ARE CONTROLLABLE
When analysing businesses, we look in hindsight at why businesses fail. In doing so, we often confuse the causes of failure in a business, with the symptoms we should see that predict the failure. Causes are generally controllable, or preventable, symptoms are not, but they are identifiable, and early identification means early treatment.
The symptoms of the common cold are a runny nose and sore throat. But by then it is too late, you are sick. The causes of a cold are questionable hygiene and not wearing shoes in cold weather. These actions are treatable, and so colds can be restricted. Contrast pandemics – not controllable, we often don’t know (or are not sure) the causes, so it cannot be treated until there is a cure. Instead, society is looking for symptoms early, testing and responding to them, which is the next best thing.
SYMPTOMS VS CAUSES OF DECLINE
Corporate decline is the same. Symptoms are tell-tale signs, danger signals that can be identified. What symptoms you see depends on your point of view and the information available to you. Those closest to the business generally see the problems before outsiders. However, sometimes they don’t have a trained eye. Often those with the most at stake (shareholders) rely on publicly available data only and suffer from information time lag. Set out below are some of the things that different observers see:
|“Interested observer/ reader”||
|Suppliers and customers||
THE TREATMENT AND THE CURE
Businesses are not people; they have stakeholders who have to take responsibility for improvement. Sometimes, to repair confidence so as to establish stakeholder support, it assists to treat the symptom. But if you are observing too many of these symptoms, then it is too late. The secret is to try and recognise the trends leading to the crisis and not the crisis itself. Conversely, pandemics can’t be stopped, but you can ready your business with a risk management plan, plenty of capital, and appropriate gearing.
You really need to find out the root causes of a problem, in order to re-establish business confidence. In a later article we will look at the causes of decline, and how early intervention can address those causes.
Wexted Advisors communications are intended to provide commentary and general information. They should not be relied upon as financial or legal advice. Formal financial or legal advice should be sought in particular transactions or on matters of interest arising from this communication.