Various warning signals

Diagnosing difficulties as early as possible allows them to be treated quickly, before they become too serious.

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

The head of company should be alert to the following signals:

• Operational and market signals : loss of a major customer, delayed delivery of equipment, production tool failure, failure of a major customer, loss of a major market, or delayed delivery of a supplier
• Political Signals : political upheaval 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 : increase in energy costs, regulatory change making the activity more restrictive or requiring additional costs
• Financial Signals : lack of cash, rejection of a payment, significant tax adjustment, banking ban

Signal detection means

Detecting weak signals means identifying and dealing with the difficulties of the company as far upstream as possible, that is to say before they become too great.

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

• Carry out a monitoring activity and promote the feedback within the company.
• Get closer to operational teams that may have identified a difficulty
• Use the chartered accountant or the 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 the difficulties are detected, the manager must therefore put in place all the necessary measures to restore the situation and ensure the sustainability of the company.

The manager who has identified warning signals must react quickly to the first difficulties, for example:

• Recover unpaid amounts
• Obtain payment deadlines from suppliers or business partners
• Request payment deadlines or relief from the tax authorities or the Urssaf

Monitor the company's cash flow

Establish a forward cash flow plan

The forward cash flow plan allows cash flow problems to be detected and anticipated.

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

• Receipts: projected revenue TTC: titleContent, capital contributions (starting capital and capital increases), capital contributions current accountgrants received, financial products, tax refunds, etc.
• Disbursements: investments, purchases including VAT, general expenses including VAT (rents, fees, maintenance, insurance, transport expenses), salaries and social charges, taxes, capital reductions, reversals of contributions in current account, financial charges, etc.

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

A negative cumulative 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
• In the event of a structural problem concerning the very functioning of the company, find a long-term solution such as a new capital injection or an additional bank loan

Calculate working capital (FR)

It represents the part of the permanent capital of the company that does not finance the fixed assets. It therefore remains available for the needs of the operation.

It is calculated from the balance sheet of the company.

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

Positive working capital indicates that the company has excess cash after covering all its short-term obligations. It's an indicator of financial security that demonstrates prudent and effective management of a company's assets.

On the other hand, if it is negativeHowever, this means that the company lacks the capital to meet its needs. This may imply cash flow problems.

Calculate Working Capital Requirement (WCR)

Working capital requirement (WCR) is the company's need for financing to operate on a daily basis.

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

Working capital requirement (WCR) = Stock + Receivables – Payables

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

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

To learn more about the management tools, you can consult the CCI Practical Guide :

Practical guide on preventing company difficulties

CCI France

Pour en savoir plus

Monitor the profitability of the company

Building a dashboard

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

The dashboard is a management tool made up of indicators that allows you to have a status and a general trend of the company's 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 margin, purchase of goods, stock of goods, transport cost, travel expenses, etc.
• Indicators physical measure the quality of products and services: delivery times, customer satisfaction, number of quotes issued, etc.
• Indicators humans measure employee performance: staff volume, staff turnover, absenteeism rate, etc.
• The indicators of project monitoring measure the progress of a project

The dashboard allows you to see the differences between the forecasts and the company's actual activity. Once problems have been identified, the reasons for the situation (e.g. new competitor) should be identified. Next, the necessary actions must be put in place to improve performance and remedy the situation (communication action, change of mode of transport, etc.).

For more information, you can consult our fact sheet on the creation and implementation of a management dashboard.

Establish a profit and loss account

The income statement shall be drawn up at the time of the closure of the accounting year. It summarizes the revenue that increases the value of the company and the expenses for the previous accounting year.

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

Calculate breakeven

The break-even point represents the minimum level of turnover that can 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 company manager because it allows him to assess from which moment he starts to make a profit.

To calculate the break-even point, the following steps must be followed:

1. Allocate all loads in 2 categories:
   
   • Fixed expenses: these are incompressible expenses: rent, wages, social security, occupational insurance, taxes, etc.
   • Variable expenses: these are purchases of raw materials or goods necessary for sale, transportation costs on purchases and/or sales, interim expenses, energy expenses, etc.
2. Calculate variable cost margin : variable expenses must then be subtracted from the forecast turnover.
3. Obtain the variable cost margin rate by translating the variable cost margin into percentage of turnover: (variable cost margin/turnover) x 100.
4. Determine break-even point : fixed expenses / variable cost margin rate

For more information, you can consult our fact sheet on the calculation of break-even point.

Estimate the degree of difficulty of a company

Infograft

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

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

Self-diagnostic tool to assess 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 the heads of company on the prevention of difficulties of companies and aid and support mechanisms.

It offers a tool adapted to VSE 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 professional CIP volunteers: a chartered accountant or auditor, a lawyer and a former consular judge.

Self-diagnosis 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, a first analysis of the financial health of the company is made. This can be complemented by more in-depth support provided by an advisor from the Chamber of Trades.

Financial self-diagnosis tool: the Financial Express Diag

Measure and compare the performance of a company

There are analytical tools that measure and compare company performance, identify 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 the potential for improvement.

The manager chooses his sector of activity and geographically targets the companies with which he wishes to compare himself. He then obtains a report that he can use to exchange with his partners

To access Opale, the company manager must first register in the Banque de France's management area:

Subscribe to the Banque de France's management space

Chambers of Commerce and Industry (How's my box?)

Chambers of Commerce and Industry (CCIs) offer company managers less than 10 employees (traders, craftsmen, service or industrial companies), a tool “How's my box?”.

This tool makes it possible to carry out an online and confidential assessment of the economic and financial health of a company by analyzing the elements concerning the administrative, accounting, financial, digital commercial activity and customer/supplier relations. It allows a regular follow-up of the health of the company and makes it possible to detect as quickly as possible any difficulties.

This tool is offered in each regional KIC.

Self-diagnosis tool “how is my box?”

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