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Is Your Business Borrower Headed for a Flameout?

The very signals to an outside CPA that one of their business clients is headed for trouble can be heeded by the business lender, too.

In the article ‘Is Your Company Headed for a Flameout?, Rick Telburg reports in the AICPA Insider online journal, www.CPA2Biz.com on the conclusions of the same man who helped us understand how companies go from good to great, Jim Collins.

In his book ‘How the Mighty Fall‘ he chronicles what he says are the five phases these flame-out companies go through:

  1. Hubris born of success
  2. Undisciplined pursuit of more
  3. Denial of risk and peril
  4. Grasping for salvation
  5. Capitulation to irrelevance or death

He also keys in on three accounting indicators:

  • Decline in gross margins
  • Current Ratio
  • Debt-to-equity

So keep reading the financials.

And then tell me how are you going to distinguish between a temporary setback in gross margins, current ratio and debt-to-equity due to the economy, and a more permanent and fatal slide?

About the Author
Linda Keith CPA is an expert in credit risk readiness and credit analysis. She trains banks and credit unions throughout the United States, both in-house and in open-enrollment sessions, on Tax Return and Financial Statement Analysis. She is in the trenches with lenders, analysts and underwriters helping them say "yes" to good loans. Creator of the Tax Return Analysis Virtual Classroom at www.LendersOnlineTraining.com, she speaks at banking associations on risk management, lending and director finance topics.