Danger signal: is your organization at risk? Early warning signs can pinpoint business troubles -- and understanding them can help resolve potentially crippling problems. (Management).

Too often, companies die unnecessarily. Why? Because most managers haven't learned to recognize the symptoms of oncoming illness in their business. Managers frequently don't know how to manage in this situation. They haven't had to in the past, and are ill-equipped to do so when trouble sets in.

The obvious signs of business trouble are rarely its root causes. Losing money, for example, isn't the problem; losing money is the result of other problems.

When you wait too long to recognize deteriorating characteristics and the company seeks bankruptcy protection, only creditors, attorneys and accountants stand to benefit. It's the astute manager who recognizes fallibility and has the foresight to ask for help before serious trouble sets in.

Corporate managers and directors share in their company's business risks, and accept additional risk when the company is heading for trouble. By recognizing some early warning signs of business peril on the horizon, they can eliminate, overcome or, at the very least, side-step those risks.

If you can answer yes to some of the following questions, it's time to take decisive action.

Is the owner or top management over-extended?

Whose work are they doing? When they continue to perform functions that should be done by others (once the business has grown to a more complex level), they're over-extended.

Managers need to delegate work appropriately. Define the owner's and key managers' jobs to clarify role responsibility. Assess subordinates' competence; retain them if appropriate -- replace them if not. Monitor key metrics to remain informed about conditions, without being immersed in them.

Is the turnover rate excessive?

A sure sign of underlying problems is rapid employee turnover. Employees know when problems exist, and in a reasonably healthy job market, the good ones will leave early. This condition can result from a faulty hiring process, inadequate training, poor management -- the list goes on. The price for ignoring this problem is high: low morale, lost wages, high recruiting costs, lack of productivity and ultimately, lost business.

Uncover the real causes early on, and rectify them. Solutions include clearly defined job responsibilities, performance expectations, rewards and scope of authority. Several levels of management attention should be devoted to new key employees (and those moving to new positions) during the initial days of their assignment.

Are communications ineffective?

Ineffective meetings, management information or interdepartmental coordination can destroy a business from the inside out -- even as it is growing.

If all that is accomplished during "bull sessions" is a lot of, well, "bull," then the leader is clearly at fault. It's a leader's duty to limit the scope of topics discussed and participants, to establish an agenda -- with specific begin/adjourn times -- and stick to it. Demonstrate organization by managing your meetings, and your team will reward the organization by managing your company.

Are goals unclear?

Chronic failure to achieve stated business goals suggests problems far more serious than a lack of performance. Often, it implies a lack of clarity regarding the owner's goals, and usually indicates a failure to secure management team "buy-in." Take a long, hard look at the goal-setting process. Set goals and hold managers accountable for success.

Are compensation and incentive programs yielding unsatisfactory results?

While it seems obvious that programs should clearly and directly reward individuals for successful job performance, it's remarkable that many companies unwittingly set up compensation structures that reward performance altogether differently from the duties outlined in the job description. A word of warning, if this is your practice: Be careful what you pay for -- you just might get it.

Managers who are paid incentives based on gross margins can be more effective than those paid on gross sales. Because they share the burden of poor performance, they're more likely to take corrective action when faced with substandard performers. Pay incentives when performance is achieved, and don't pay them when it is not achieved.

Is new business waning?

If so, you are out of touch with the marketplace. High prices, unresponsive proposals and giving more than is required of you are the typical reasons why companies lose bids. Commitment to winning new business is essential to success, so identify targets early on -- always keeping a close eye on the customers' special needs. Bid to win, then manage for profit and growth.

Are any key client relationships deteriorating?

Determine if a falloff in business from longtime customers is due to poor market conditions in their industry or poor service from your company. If it's you, you're probably no longer meeting the customer's needs. Worse, you may not know it.

Manage customer relationships carefully. Customer needs, like your own, change. Assign specific responsibility for nurturing customer relationships to all levels of management -- not just to the sales force.

Does the company create "products in search of markets?"

Products developed before market needs are assessed can waste resources and be difficult to sell. It is less expensive to create awareness of a product or service that meets an existing demand than to try to develop a new market for existing products or services that doesn't exist.

Identify how your key competencies satisfy customer needs and produce benefits. Have your team members pretend they are the competition; their task is to identify the strategy that you, the competitor, should pursue. Ask your customers what they want -- it's a simple but effective strategy.

Do financial and management reports cover the wrong information at the wrong level?

Financial and operational reports must be accurate, timely and pertinent. Too often, management receives only traditional accounting measures of company value, instead of information on cash flow or new business generated. Also, data is often prepared at the wrong level, making it difficult or impossible for management to know what's going on.

Cash flow is the best indicator of business health. Prepare forecasts, then manage to them. Management should determine performance at each level of the business (profit center, cost center, cash center) and update often.

Does the operation have a track record of failed expansion plans?

Setbacks drain businesses of cash, time and morale. When companies fail in one effort, management tends to "pull in its horns" the next time out. The result? Suppressed hopes for growth or expansion. Efforts fail because of inadequate cash, poor management, lack of thorough market analysis or improper control systems.

Managers who run independent operations must be adept at problem-solving, decision-making, team-building and managerial analysis -- skills that are not always obvious. Understand why your company is successful in its present marketplace, and try to "model" those conditions in a new marketplace.

Recognizing trouble requires no hocus-pocus, nor does solving its accompanying problems. Seldom is there only one reason for business troubles; more than likely, there are two or three. Getting to the real issues is the catalyst for change -- and recovery.

John M. Collard, a certified turnaround professional, is Chairman of Strategic Management Partners Inc., Annapolis, Md., a turnaround management firm specializing in interim executive leadership, corporate renewal and post-acquisition support for the private equity community, (www.strategist.ws, 410.263.9100).