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Business survival checklist

Lightbulb is a law blog on intellectual property and its commercialisation. They might be regarded as esoteric or technical subjects. They are, and they aren't. For example, their broader context is business law and business needs generally.

Prominent in those contexts is the topic of business survival.

Here is a tool to help our readers to conduct a business audit for business survival. What are the signals your business must respond to for survival?

Growth

 

Any consideration of the growth of a business should examine the forecast growth rate of the business and whether that growth can be internally funded. Growth indicators are varied but here are a few key ones.

1. How much has revenue risen in the past 12 months?

(a) more than 50%

(b) 25-50%

(c) 10-25%

(d) less than 10%

 

2. What percentage of your key staff have you lost over the past 12 months?

(a) more than 50%

(b) 25-50%

(c) 10-25%

(d) less than 10%

 

3. Have the number of outlets, square metre of floor space, or number of product or service lines increased? If so, by how much?

(a) more than 50%

(b) 25-50%

(c) 10-25%

(d) less than 10%

 

Investment in Assets

 

4. For a service provider, what is the level of expenditure on training and personal development programs of your staff relative to revenue?

(a) more than 10%

(b) 7-10%

(c) 3-7%

(d) less than 3%

 

5. For a manufacturer, what is the average useful life of fixed assets, based on technical useful life?

(a) more than 10 years

(b) 5-10 years

(c) 3-5 years

(d) less than 3 years

 

6. What percentage of the cash flow of your business have you committed to upgrading and/or buying equipment?

(a) more than 50%

(b) 25-50%

(c) 15-25%

(d) more than 15%

 

Finance

 

7. What impact will a change in interest rates have on your business' profitability? To calculate your interest cover, divide your annual interest expense into your pre-tax profit before interest. The result:

(a) more than 5

(b) 2-5

(c) 1-2%

(d) less than 1

 

8. What is your gearing ratio? This is calculated by dividing your interest-bearing debt by all the debt and equity in the business, giving an indication of the level of debt relative to net assets. The result:

(a) more than 5

(b) 2-5

(c) 1-2%

(d) less than 1

 

Business Liquidity

 

9. What level of assets is expected to be realised in the coming period when compared with those liabilities expected to be retired during the same period? This quick asset ratio is calculated by taking total current assets (excluding inventory) and dividing it by current liabilities. The result:

(a) more than 1.5

(b) 1-1.5

(c) 0.7-1%

(d) less than 0.7

 

10. Have you conducted a detailed review of the historical cash flow of your business and prepared a cash flow projection?

(a) conducted both reviews and looked at future funding

(b) conducted reviews but not determined future funding

(c) conducted only one of the reviews

(d) conducted neither review

 

Profit

 

11. Have the profit margins increased over the past 12 months? If so, by how much?

(a) more than 30%

(b) 20-30%

(c) 10-20%

(d) more than 10%

 

12. Profitability is related closely to the operational performance of the business. Operational measures involve such things as staff utilisation or the number of customer complaints. Does the business set operational measures or targets, monitor them and implement procedures to correct them?

(a) sets targets, monitors and looks for areas for improvement

(b) sets targets and monitors only

(c) sets targets only

(d) does not use operational measures

 

Dependence

 

13. To what extent does the business depend on its five largest customers/customers for sales?

(a) more than 50%

(b) 20-50%

(c) 10-20%

(d) more than 10%

 

14. Is there one supplier who supplies the bulk of the business' material or referrals? If so, what percentage does it involve?

(a) more than 50%

(b) 20-50%

(c) 10-20%

(d) more than 10%

 

15. Look at the key personnel of the business. If one of them left, how long would it take before it becomes urgent to find a replacement?

(a) more than 12 months

(b) 6-12 months

(c) 1-6 months

(d) less than 1 month

 

Future

 

16. To what extent do you prepare long-term business plans, ie over 3 years?

(a) documented and reviewed quarterly

(b) documented and reviewed annually

(c) documented but not regularly reviewed

(d) not developed

 

Distress

 

17. In the last 12 months which of these difficulties have you experienced - tick those which apply.

  • Legal proceedings threat
  • Debt collection against the business
  • Higher than natural attrition in employees
  • Inability to maintain production machinery/computers
  • Inability to maintain quality control
  • Shortened working hours for staff
  • Renegotiation of wages for those above the award
  • Rescheduling delivery under standing contracts
  • Sale and lease back of assets
  • Restructuring property rentals to reduce the outlay
  • Asset reduction
  • Transfer staff from payroll to contract work

Cash Flow

 

18. In the last 12 months which of these cash flow problems has the bisomess experienced - tick those which apply.

  • Cheques dishonoured
  • Continual or repeating temporary overdraft at bank
  • Creditors stopping supply
  • Sale of assets to fund operations
  • Upward movement in debt level
  • Constriction of credit provision to customers
  • Extension of creditors credit provision
  • Difficulties in meeting weekly payroll
  • Postdating cheques
  • Owner/partner not drawing, or reduction in wages
  • Special sales to improve liquidity

Marketing

 

19. In the last 12 months which of these marketing difficulties has the business experienced - tick those which apply.

 

 
  • Drop in revenue continuing trend
  • Substantial increase in expenses in any quarter
  • Trend emerging/continuing of increase in expenses
  • Abnormal increase in inventory
  • Product/market pruning
  • Lack of forward orders
  • Decreasing market share
  • Increase in competition
 
 
 
 
 
 
 

General Performance

 

20. How would you describe the general performance level of the business now - tick the box that best reflects your choice.

  • Well established, performing well
  • Growing and strong
  • Hard work but good return
  • Not enough return for effort expended
  • Experiencing problems

Turnover

 

21. Using this numbered hierarchy of figures, for the bullet point questions below, mark the number which is closest to the situation of the business:

(a) $5-10 m or more

(b) $3-5 m

(c) $1-3 m

(d) $750 k - 1 m

(e) $500 - 750 k

(f) $300 - 500 k

(g) $100 - 300 k

(h) less than $100 k

 

22. What is/has been the average annual turnover/sales in each period shown?

 

Last 12 months:

1-2 years ago:

3-5 years ago:

23. What is/has been the average level of assets in each period show?

Last 12 months:

1-2 years ago:

3-5 years ago:

24. What is/has been the average level of debt in each period show?


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