A variety of warning signals

Diagnosing problems as early as possible enables people to treat them quickly, before they become too severe.

To anticipate difficulties, weak signals must be identified. These are warning signs of a potential threat or difficulty. They are very varied and usually come well before cash flow problems.

The Head of company must be attentive to the following signals:

• Operational and market signals : loss of a major customer, delayed hardware delivery, production tool failure, failure of a major customer, loss of a major market, or delayed delivery of a supplier
• Political signals : Political upheavals in a country where the company is engaged (Russia, Ukraine)
• Social Signals : conflict with a partner, high absenteeism rate, increase in resignations, strike of employees, loss of a key person
• Regulatory Signals : increased energy costs, regulatory changes making the activity more burdensome or requiring additional costs
• Financial Signals : cash default, rejection of a payment, significant tax adjustment, banking prohibition

Signal detection means

Detecting weak signals means identifying and addressing company difficulties as early as possible - before they become too big.

The head of company should try to diagnose weak signals as soon as possible. In order to detect these signals, it must analyze the company's situation, in particular by:

• Perform a monitoring activity and promote the feedback within the company.
• Reach out to operational teams that may have identified a difficulty
• Use the public accountant or auditor to check the company's financial situation
• Make a regular point with the bank advisor

Weak signals can have a severe impact on company activity. Once difficulties have been detected, the leader must take all necessary measures to restore the situation and ensure the sustainability of the company.

The leader who has identified warning signs shall to react quickly to the first difficulties, for example:

• Retrieve unpaid
• Obtain payment terms from suppliers or business partners
• Request payment delays or relief from the tax authority or the Urssaf

Monitor the company's cash flow

Develop a projected cash flow plan

The forecast cash flow plan helps to detect and anticipate cash flow problems.

This is a table showing expected cash receipts and disbursements, month by month:

• Receipts: projected turnover TTC: titleContent, capital contributions (initial capital and capital increases), capital contributions current accountgrants received, financial products, tax refunds, etc.
• Disbursements: investments, purchases including VAT, overheads including VAT (rent, fees, maintenance, insurance, transport expenses), salaries and social security costs, taxes, capital reductions, recapture of current account contributions, financial charges, etc.

The cash flow plan thus makes it possible to know the cash balance of the month and accumulated balance from month to month.

A negative accumulated balance gives an alert. Several actions are then possible depending on the difficulty encountered:

• In case of temporary difficulty, seek a quick financing solution such as an overdraft authorization or short-term bank credit
• If there is a structural problem with the company itself, a long-term solution should be found, such as a new capital injection or a complementary bank loan

Calculate working capital (FR)

It represents the part of the permanent capital of the company which does not finance fixed assets. It therefore remains available for operational purposes.

It is calculated from accounting balance sheet company.

Working capital (FR) = Equity + Debts - Fixed assets

Positive working capital means that capital assets are financed by cash.

However, if it is negativeHowever, capital assets are financed by cash, which implies cash-flow problems.

Calculate Working Capital Requirement (BFR)

Working capital requirement (BFR) is the amount of financing the company needs to operate on a daily basis.

It materializes the cash requirement company. Ideally, the working capital (FR) should be used to finance part of the BFR.

Working capital requirement (BFR) = Inventory + Receivables - Payables

If the BFR is positive, this means that the company needs cash to finance the gap between disbursements and receipts.

If negative, the requirement is less than the operating resources. The company does not need to use its surplus resources.

FYI  

For more information on management tools, please consult the ICC Practical Guide:

Practical guide on the prevention of company difficulties

CCI France

Pour en savoir plus

Monitor company profitability

Building a dashboard

The dashboard is a performance monitoring and control tool that provides an overview of the company's activity

The dashboard is a management tool made up of indicators that allows to have a status and a general trend of the company activity in real time. It provides an overview of the company by setting up indicators based on realistic objectives.

Several types of indicators can be used depending on the activity of the company:

• Indicators economic measure results and costs: revenue per customer or product, trade margins, purchase of goods, inventory of goods, transportation cost, travel expenses, etc.
• Indicators physical measure product and service quality: delivery times, customer satisfaction, number of quotes issued, etc.
• Indicators human measure the performance of employees: number of employees, staff turnover, absenteeism rates, etc.
• Indicators of project monitoring measure the progress of a project

Use the Dashboard to identify variances between forecasts and actual company activity. Once problems have been identified, the reasons that led to the situation (e.g., new competitor) must be determined. The necessary actions to improve performance and remedy the situation (communication action, change of mode of transport, etc.) must then be put in place.

Establish a profit and loss account

The profit and loss account shall be drawn up at the close of the accounting year. It summarizes the revenue that increases the value of the company and the expenses of the previous accounting year.

It is a useful tool for determining the profitability of the company. It allows you to compare the expenses and revenues of a given year with a previous year or to know why the result is positive or negative.

Calculate break-even point

The break-even point represents the minimum level of turnover that makes it possible to generate a profit, in other words, to be profitable. Below this threshold, the company is in deficit.

The calculation of the break-even point is very useful for the head of company because it allows him to assess when he starts to make a profit.

To calculate the break-even point, you must follow the next steps :

1. Divide the total burden into two categories:
   Fixed charges: these are the non-compressible charges: rent, salaries, social security charges, professional insurance, taxes, etc.
   Variable charges: purchases of raw materials or goods required for sale, transport costs on purchases and/or sales, temporary agency costs, energy costs, etc.
2. Calculate the variable cost margin: then you have to subtract the variable expenses from the projected turnover.
3. Obtain the variable cost margin rate by translating variable cost margin as a percentage of revenue: (variable cost margin / revenue) x 100.
4. Finally, determine the break-even point: fixed charges / variable cost margin rate

Please note

For more information, please see:

Calculation of break-even point

French Banking Federation

Pour en savoir plus

Estimating the degree of difficulty a company has

Infograft

Infograft offers a self-diagnosis to assess the degree of difficulty. It is a free questionnaire on the company's economic activity, financial situation and environment.

If the entrepreneur has more than 7 positive answers, it means that the company has difficulties already present or to come.

Self-diagnostic tool for assessing the degree of difficulty of a company

Center for Information and Prevention of Difficulties (CIP)

The Center for Information and Prevention of Difficulties (CIP) receives and informs heads of companies about company difficulty prevention and support mechanisms.

It offers a tool adapted to TYPE to estimate the degree of difficulty encountered by the company. At the end of this test, the company can make a free appointment with 3 CIP volunteer professionals: a public accountant or auditor, a lawyer and a former consular judge.

Self-diagnostic tool for companies in difficulty

Chambers of crafts and crafts (CMA)

The network of chambers of trades and crafts offers a financial diagnostic tool.

At the end of the questionnaire, an initial analysis of the financial health of the company is carried out. This can be complemented by more in-depth support provided by an advisor from the Chamber of Trades.

Financial self-diagnostic tool

Measuring and comparing the performance of a company

They are analytical tools that measure and compare the company’s performance, pinpoint strengths, and uncover potential for improvement.

Banque de France (Opale)

Opal is a tool management and decision support free offered by the Banque de France.

It allows you to measure and compare the company’s performance, identify strengths, and discover potential for improvement.

The executive chooses the industry and geographically targets companies with which to compare. He then obtains a report that he can use to talk to his partners

To access Opale, the head of company must first register at the Banque de France's management area:

Subscribe to the Bank of France's management area

Chambers of Commerce and Industry (How is my box?)

Chambers of Commerce and Industry (CCIs) offer company leaders less than 10 employees (traders, craftsmen, service companies or industrial), a tool "How is my box?".

This tool allows to perform online and in a confidential way an inventory of the economic and financial health of a company by analyzing the elements concerning the administrative, accounting, financial, commercial digital activity and customer / supplier relations. It allows regular monitoring of the health of the company and makes it possible to detect possible difficulties as quickly as possible.

This tool is offered in each regional KIC.

“How is my box doing?” self-diagnostic tool

This tool is free, anonymous and confidential. The outcome provides a basis for discussion between heads of company and their partners: CCI, accountant, bank, lawyer, etc.