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Red flags - how to recognize and respond to the early signs of business failure By Shabnam Ansari Head Strategic Planning- Nexus Insurance.

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Presentation on theme: "Red flags - how to recognize and respond to the early signs of business failure By Shabnam Ansari Head Strategic Planning- Nexus Insurance."— Presentation transcript:

1 Red flags - how to recognize and respond to the early signs of business failure By Shabnam Ansari Head Strategic Planning- Nexus Insurance

2 Agenda Frequent factors for SMEs’ failure Early warning Signs for management Early warning Signs for the board Remedial Proactive Actions A Quick health check

3 Agenda Frequent factors for SMEs’ failure Early warning Signs for management Early warning Signs for the board Remedial Proactive Actions A Quick health check

4 Internal Factors:  Poor Management- Failure to identify problems/take actions  Personal Expenses/without business analysis  Fraud and collusion, lack of controls  Dependence on single supplier/customer  Aggressive Growth or Complacency  Lack of proper research  Poor Financial Management  Lack of Succession planning

5 External Factors:  Economic Recession  Natural disasters  Government regulations  Environment protection,  International developments.  What can you do  Well managed  Well protected  Well informed

6 Agenda Frequent factors for SMEs’ failure Early warning Signs for management Early warning Signs for the board Remedial Proactive Actions A Quick health check

7 Lack of Clear Direction:  unproductive activity  complex control mechanisms  unnecessary staff/ elaborate computer systems  Lot of form without function Failure to face Growth  People Seem over their heads  Sense of inadequacy/more efficient competitors  Lack of clarity about roles and responsibilities  Excessive number of meetings to review routine  Lack of clear communication  Lack of trust & coordination

8 Complacency  Insistence on doing the things same way  There is a fear of taking risks.  People ask fewer questions;  Reject outside criticism,  Arrogance/ criticize competition.  Some people are “experts” Excessive Changes  Frequency major shifts  Average tenure,  Survivor mentality /Turnover  low employee morale/ disorganization

9 Living with poor Performance  Performance reviews- raises for all  Genuinely weak performers seldom fired  Unusual reporting relationships  Independent & aggressive problem solvers feel unwelcomed. Poor Communication  Unwillingness to listen  Too many bad surprises  Infrequent and poorly run staff meetings  Critical attitude to discourages people

10 Agenda Frequent factors for SMEs’ failure Early warning Signs for management Early warning Signs for the board Remedial Proactive Actions A Quick health check

11 Management & Internal Structures  Beware of Autocrats or dictators  Check for balance/complementary skills  Lack of Proper Succession Planning,  Be alert to Staff Turnover – too high or too low  Management that focus on the past / Advice is ignored Financial Issues  Debtors- outside trading terms, Creditors/suppliers-“cash only” terms  Review Business plans and financial statements,  Question Inadequate or absent management reports  Check Long term finance, Ensure good financier relationship  Query Excessive remuneration

12 Marketing and Products  Be aware of Cyclical markets  Monitor product quality, Consider Adequate marketing  Challenge Lack of product development  Be alert to declining sales / Rising costs  Do not put all your eggs in one basket Basic Mistakes  Approach Big projects with caution!  Improper Acquisitions- digestion  Unsustainable growth/peaks  Question anything that’s too good!

13 Polly Peck International- PPI History: Polly Peck- a small textile company Polly Peck International 80’s flourishing Empire, 200 co.> 17,000 staff Collapse: October 1990- PPI forced into liquidation-debt £1.3bn. Asil Nadir- found guilty of theft - £ 150m, 10-years in prison What went wrong: a case book- famous for its underlying reasons  In-organic growth- too sudden too extreme  Serious Governance issues- corporate power in one hand  Over leveraged- total- £ 1.3 bn, £100 mn- Short term  Lack of proper Accountancy/ financial statements

14 Agenda Frequent factors for SMEs’ failure Early warning Signs for management Early warning Signs for the board Remedial Proactive Actions A Quick health check

15 Remedial/ Proactive Actions Board and Management to work closely  Well-developed corporate governance and management practices are basic defense  Separate roles, avoid concentration of powers, active majority non-executive directors.  Management is accountable for performance, Board’s responsibilities- oversee management.  Work together & monitor progress. Independent Advice  Initial internal assessment – Co’s accountant  Independent external assessment  Better than to be assessed by financiers

16 Remedial/ Proactive Actions Define Direction.  Initiate strategic planning process  Link Strategic and Business Plans  Annual/monthly goals & Measurements Business Controls & Information Systems  True depiction of financial position  Recognized & best accounting principles  Controls, risk management & compliance  Business Monitoring KPI/regular feedback  MIS reports- relevant, user-friendly & timely

17 Remedial/ Proactive Actions Managing Stakeholders & Effective communication.  Employees- two-way communication/ regular meet/ direct link to CEO’s office  Others- customers, partners, media, etc.  Listen to the Market! Take Quick decisions:  As soon as notice any sign  Investigate  Prepared to take major decisions  Corrective action ASAP

18 Agenda Frequent factors for SMEs’ failure Early warning Signs for management Early warning Signs for the board Remedial Proactive Actions A Quick health check

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20 Thank you Shabnam Ansari Head Strategic Planning- Nexus Insurance


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