— Summary —

This is an episode featuring a question that is asked by many entrepreneurs.

The question is:

“What are the things that I look for that might give me an indication that a business is in trouble?”

There are 8 things to look for

  1. No Growth or Margin Squeeze: A business is in trouble if it doesn’t show trends in growth. The increase should not only be in revenue but also in profit. If it is lacking, the business can be considered to have a problem. We need to go back and evaluate what is causing it.
  2. Low Productivity: In business productivity is key either form an equipment, people or attitude perspective. We have to see how people treat customers, team members and each other. Challenges in having the right attitude means that we need to separate the people and understand the cause or dynamics at play.
  3. Loss of Market or Concentration: Profits will decline when there is erosion in market share and that is not a healthy sign. We need to look at the cause behind our customers leaving us. Another side of it is when concentrations occur. That is when a single customer or employee provides the maximum business.
  4. Unpaid Taxes: When businesses start to fail they stop paying their taxes. The taxing authorities will always be there to take their share in your business. The government will come after those taxes any way. So, it is better that you pay the bills.
  5. Eroding Capital: The business can’t be considered self-sustaining when assets continually shrink. It shows that the operations of the business are costing more than what is generated. Re-evaluate to keep everything at bay.
  6. Pricing Pressures: With competition there is bound to be pricing pressures. It is necessary to make us distinct from the competition by keeping ourselves state of the art and having a leading edge. Only then will we be able to have the desired margins.
  7. No Strategic Plan: A business should have a strategic plan. Think through the risks and benefits from all possible perspectives so that everything is analyzed strategically. Plan for the future and take actions.
  8. No Formal Measurement System: A challenge with businesses is measuring their performance regularly. It should be done to make adjustments for maintaining growth. Without formal measurement systems in place, a business cannot be steered towards the right direction.

— Begin Transcript —

Hey there, I’m Mel Abraham, the author of the number one best-selling book, The Entrepreneur’s Solution and the founder of Business Breakthrough Academy where we teach you how to design a business and create a life: A life of financial freedom and peace of mind.

And welcome back to this episode of The Entrepreneur’s Solution show and in this episode I get a chance to answer a question that was posed to me. I just recently came back from a five day program, a five day conference speaking and working with entrepreneurs, hundreds of entrepreneurs to help them understand how to create a bolder vision, how to create their business. But to create a business that doesn’t suck the life out of them but gives them life, gives them energy.

They asked me this question about, what is … “What are the things that I look for that might give me an indication that a business is going the wrong way, that the business is in trouble?”

So when we come back from this brief introduction, I’m going to talk about the number of things that I look at, at a business, that when I see these things it starts to raise up my antennae and the alarms and rings some bells for me, that this business may be in trouble and work from there.

And again, just like every other episode that I do, there’s always a downloadable guidebook. So, if you want to work with me and I invite you, I would urge you to be active in this process because the more active you are in the process, the more change and shift and difference you’re going to make in your business and in your life. So, to get the downloadable workbook please go to: MelAbraham.com/session025.

And if you’re not in your computer, you happen to be running, working out, in the car driving; simply text, but do it safely. Simply text: MYLEGACY no-space one-word to 38470. We’ll get you that download link and I’ll see you back here right after this brief introduction. Cheers. Bye.


Hey there Mel Abraham here, the author of the number one best-selling book, The Entrepreneur’s Solution, the founder of Business Breakthrough Academy and welcome back to this episode of The Entrepreneur’s Solution show. In this episode I’m going to go ahead like I said, I’m going to go ahead and answer a question that was posed to me at a conference that I just came from.

They said, “Are there things that you look at or that when you see them in a business that kind of raise up the flags” and say “Hey this business might be in trouble” and so there are 8 things that I came up with that. Really I’ve seen as a pattern in businesses that slowly start to erode and start to find themselves in rough waters and potentially out of business.

So, the first thing, the first warning sign that I see is that there’s: No Growth or Margin Squeeze.

When I look at businesses, one of the things you want to look at is not just how it did this year but how it’s trending. If the business is not growing then that may be an indication that there’s a problem. That they’re not generating additional sales or maybe the business is growing ahead of client number of years ago that I was consulting with.

Their business was growing, the revenues were growing. They went from 7 million to 16 million dollars over a number of years but what they were having a problem with is that though their revenue, their top-line was growing their bottom-line wasn’t. They weren’t making more profit.

That’s what I call margin squeeze. That’s what you see up there is that when you have a situation where the business is not continually growing, or you find that the margins, the profits are being squeezed at the cash flow that you can take out, being squeezed and shrinking—that’s an indication that we have some problems in the business and we need to go back into the business and re-evaluate:

  • What has happened?
  • What has changed?
  • What has shifted?

And it may be simply that we haven’t, we’re not paying attention to the market. The market doesn’t need our products anymore. They’ve changed their taste—demographics change, psychographics change, preferences change and depending on what market we’re in we need to keep our fingers on the pulse to make sure that we are providing them exactly what it is they’re looking for.

In the last episode, we talked about testing your product and the whole, the whole six step process and asking questions and listening to the market place. This is really important. So, it could be that we’re selling something that the market is not desiring as much anymore. Could be that, there’s more competition.

If we happen to have a product that has high margins, high profits and margins mean profits, high profits and high growth. One thing we know is going to happen is that there’s going to be competitors coming in because they’re saying, “Look there’s an opportunity over there”.

And so, when more competition comes in, you then find that your profits will start to erode. They’ll start to go down because they may be competing with you on a price basis. But the customer now has more choice. And when the customer has more choice—if you haven’t developed that loyalty factor which we talked about in a previous episode of building that intimacy and that loyalty factor—they may jump ship and go to the competition; which means that you’ll start to see slower growth, margin squeeze and things of that nature.

So, there’s a lot of reasons that this could happen. It’s a matter of analyzing the business and understanding what is going on to figure out what is causing it.

The second is what I call Low Productivity and that could be low productivity in equipment.

In other words, we’re working off of antiquated equipment. I’ve been in business since where I’ve walked in and they literally working of off equipment that’s duct taped together. They’re not at the highest productivity. They’re not at their highest capacity. Ask yourself this, if a customer decides to tour the facility or your team’s coming in and you’re duct taping equipment, what message is it sending?

Do we really care about the quality of the product that’s coming out?

  • If we don’t care about the quality of the system that’s producing it.
  • If we’re not taking care of the system.

Low productivity could be in people. One of the companies that I sit on the board of directors with spends a fair amount of time working with the ports and logistics and moving freight. And we’re very, very labor intensive and if we, if the people aren’t happy— if we’re not taking care of our people—they’re not going to take care of us.

And if they slow down their activity, reduce their productivity that:

  • Costs us money.
  • Costs the customers money.
  • Erodes the profits.
  • Erodes the cash flow.

So, we want to look at the trends in productivity.

And then, the other thing is to consider: What’s the attitude.

When we go into a, when you go into a business; when you go into a company: you want to see how people treat each other.

  • How they treat their customers.
  • How they talk about the customers.
  • How they treat each other.
  • How they treat team members.
  • Is there a lot of gossip?
  • Is there a lot of politics?
  • Is there one controlling person that is controlling everything through intimidation, through being power hungry, through dictatorship?

Dictatorships will work for about that long, for a very short period of time because no one will stay long in a dictatorship. Your best bet is:

  • To create that common vision.
  • To create a common mission.
  • To have people that are there behind you because you created connection with your team.

We talk about connection with the customer but even with your team, we need people that are going to rally for us. But that means that we need to rally for them. We need to give to them. We need to sport them in the process. If we want high productivity from our folks we need to give them

  • The right tools,
  • The right equipment,
  • The right training,
  • The right environment.

So, they will have the right attitude in that process.

So, when I go into a company and I see challenges with equipment, people or attitude that starts to give me an indication. And then want to separate them out and start to understand what the dynamics are that are at play that are causing that.

The next is: Loss of Market Share or Concentrations.

And when we say loss of market, loss of market share and I kind of briefly touched on that in the first, the first warning sign that I talked about. But that is, if we start to see a decline in sales or we see that when we came on the scene we had 22% of the market and now all of a sudden we’ve only got 18% of the market.

When I see an erosion of market share that means that we’ve got, we’ve got a market that (1) could be growing so I need to look at that. But if the market is not growing, say the market’s not growing. I went from 22% to 18% over a couple of years. What caused that?

  • Is it competitors coming in?
  • Is it a better product coming in?
  • What caused it?
  • Is it pricing structure?
  • Is it customer service?
  • Is it customer experience?

What is causing our customers to jump ship and start eroding our market share because if we continue to erode that market share we’re going to end up going down the path of finding ourselves in insolvency or having to liquidate, bankruptcy because we need to stem the tide. And the key there is to not wait too long and again, listen to the market.

Now, the other side of that is that if I see concentrations and when I talk about concentrations meaning that more than say 5 to 10 percent of my business is coming from one customer, from one place. May be I got a business that, in fact I have one business that I was looking at and consulting with. They had 60% of their business coming from one customer and that customer, they had no contract with. So, that customer could up and leave at any moment in time.

So, when I look at this and I say, in a blink of an eye 60% of the business could be gone that’s a warning sign. Doesn’t mean you don’t do something about it. Just means that that’s a huge risk to consider and so we need to put a plan in place, we need to put a strategy in place to not be so dependent on those concentrations.

Same thing, if I see in a business that there’s a concentration of knowledge, a concentration of expertise in a single person—it’s what we call in business the single point of failure.

  • What happens if that person gets sick?
  • What happens if that person ends up in a car accident, disabled?
  • Or dissatisfied and decides to leave or decides that they want to start their own thing?

Single point of failure; so when I see single points of failure in a business, it’s a warning sign. Now, that doesn’t mean that you walk away. It means that you try to find a way to dissipate the single points of failure and to support them and bolster them, so you don’t have a single point of failure in the process.

Number Four: Unpaid taxes

This is usually down the road a ways. But for some reason, for some reason when businesses start to fail, businesses start to get in trouble they stop paying their taxes. And I got to tell you something and I’m a CPA as you know. I’m a CPA so I deal with this a fair amount both for taxpayers and I’m hired as an expert for the Internal Revenue Service. I know, boo hiss and I’ve gone to the dark side.

But the reality is that I’ve been hired to represent the IRS in cases and that type of thing and the last thing you want to do is not pay your taxes because the IRS and the government have rights that you and I don’t have. And when you do that, they will come after you and they’ll come after you in a big way. So, you want to make sure that you understand that you always have a partner in your business and that partner is the tax, the taxing authorities, the tax man.

They are going to always take their share and you need to put that away and if you’re having problems paying bills, we got to figure something else out because the government’s going to come after those taxes either way and they can either make you personally responsible, they can, in some cases, they can go after your homes. They can do things that other people you might owe money to can’t.

And when you talk about owing money, I’m an absolute firm believer in you pay your bills. You do what you say you’re going to do. You show up when you say you’re going to show up and you put up when you say you’re going to put up.

In other words, when you make a deal with someone you do whatever you got to do to make sure that that comes true. That’s integrity, that’s trust and people will stay with you and they will fight for you when you do that. You don’t walk away from it.

But unpaid taxes is a huge, huge beacon of a warning in dealing with businesses and looking at that.

Eroding Capital

In other words, when we talk about capital it could be cash, it could be assets like equipment. When we see that the business is shrinking. In other words, we’re using up our cash, we’re using up our assets and it’s going to continually shrink. That’s an indication that the business isn’t self-sustaining. It’s not supporting itself in a cycle.

So the operations of the business are costing more than what we’re making. So, we need to re-evaluate that. If we don’t stem that tide, if we don’t change that trend; again we find ourselves on the road to bankruptcy. Find ourselves on the road to liquidity. So, eroding capital is number 5.

Number Six is Pricing Pressures.

If I’m in a business where I’ve now I was the sole provider in that arena then I didn’t have pricing pressures. Now there’s a ton of competition coming in. Now I’ve got pricing pressures.

What the challenge when you have pricing pressures is that at some point it can force you to move yourself from a unique distinct space into commodity space where all choices being made by the marketplace are being made based upon price alone and that’s the worst place to compete. So, what we need to do is say,

  • Keep ourselves state of the art,
  • Keep ourselves on the leading edge
  • Keep ourselves as the industry leader
  • As the thought leader.

As the person that’s setting the standard so we charge supreme and so we can have the margins in there at that level.

Then I look at: No Strategic Plan

I can’t tell you how many businesses, how many businesses have no strategic plan. They have no plan. So, they’re just shooting for the hips. They’re showing up at, on their doorstep every single day. They’re doing what they did yesterday and they just continue to do it. They have no strategy in-place, no tactics to fulfil that strategy and no execution to do the tactics to fill that strategy because they didn’t put it in place.

All businesses need to have a strategic plan. It doesn’t have to be some luminous business plan. We’re going to talk about business plans in another episode but there needs to be a plan—a documented plan. Something where you’ve thought it out, you’ve thought it through.

  • You’ve thought about the risks.
  • You’ve thought about the benefits
  • You’ve looked at it from a lot of different perspectives.
  • You come up with alternatives should you hit obstacles or some sort of challenges.
  • You’ve gone through the process.

But when I see a company or a business, when I say, “What’s your plan for the future?” and they say, “I don’t know. Make sales.” That’s not a plan for the future.

  • Hope is not a plan.
  • Prayer is not a plan.
  • Faith is not a plan.

All are great things—hope, faith and prayer. It’s, they’re great things but not a strategy for business.

So, what’s your strategic plan in business?

And then lastly is: No Formal Measurement Systems

Businesses and I get it, most entrepreneurs; a lot of entrepreneurs are creative types. So, they just want to create. They want to create products and they see, they see opportunities and they go out and they’re excited about it and they go out and they build it. They build it and they’re serving and they’re creating more and more products, the challenge is this:

  • Are you doing it profitably?
  • Are you moving and measuring?
  • Do you have systems in place that are measuring your results?

That are measuring what you’re doing. That are formal measurement systems, so you can, so you know what you’re doing. So you can make changes. So you can make adjustments. So you can do the things that can create profitability and growth in your business.

If you don’t, many of you that have heard me speak; you’ve heard me say this. “If we don’t measure, we can’t manage it. If we can’t manage it, we can’t monetize it.” So, the key is: Do you have measurement systems in place?

And if I don’t see formal measurement systems in there and I don’t see that the executive team, the managerial team are looking at the key metrics on a regular basis, tracking them, adjusting, tweaking, and moving, then what’s happening is that they may get their financial information once a quarter, once a month, once a year and they’re making decisions way too late. And therefore they’re not correcting, they’re not course correcting on an ongoing basis.

Think about this: “If I was the pilot that was flying from Los Angeles to New York. It’s about a five hour flight. And I never looked at the instruments once I took off from Los Angeles and I never looked at them until about four and a half hours in the flight when I’m supposed to be thirty minutes from landing in New York.” How far off course could I be?

Well if the pilots aren’t going to do that and they’re going to continue, they course correct on their trip from L.A. to New York. Why should we as entrepreneurs not do that?

Why should we wait until the last minute to look at things and then say, “Oh my gosh”. When if we look at them regularly:

  • We can course correct immediately.
  • We can course correct proactively.
  • We can look at it compared to our strategic plan and build on it.

So, those are the 8 warning signs that I see, that if I see, the more of these that I see in a business, the  more likely I’m going to say, “This is really in deep water and we need to either make some changes or shut it down.” And I’m not the one that likes to shut things down but sometimes if it’s too far gone, it’s too far gone.


  1. no growth/margin squeeze,
  2. low productivity,
  3. loss of market share or too much in-concentrations,
  4. unpaid taxes,
  5. eroding capital,
  6. pricing pressure,
  7. no strategic plan and
  8. no measurement systems.

So, look at those. Those are the 8 warning signs. I hope that this serves you. I hope that you found value in understanding my thought process behind this. And again, just like every other episode if you want to get the guidebook that comes along with this, go ahead and download it from MelAbraham.com/session025.

If you can’t; you’re not at the computer and you happen to be out on the road, go ahead and just text MYLEGACY one-word no-spaces MYLEGACY to 38470. We’ll make sure that we get you the download link right away.

And do me a favor. Share this with a friend. Let’s give them some of these tools. Give them some of these trainings. Give them some of the tactics so they can change their trajectory, so they can build their business, build their life, build their future in a different way.

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And if you have a question for me, just reach out. Go to AskMelNow.com. You can leave me your question there. That’s the way that I get a lot of these questions. That’s how this question came in. Leave me the question and I’ll make sure that I answer it on an upcoming episode. It allows me to be in your back pocket to help you build your business, build your life.

And those questions could be anything. From success to wealth to money to business, whatever you need; just ask it. I’ll be sure to get to you. And again, I hope you found this of value, I look forward to seeing you in the next episode which I’m going to actually talk about the other side of this: The eight traits of successful businesses.

So, I’ll see you when we come back for that next episode. Until we get a chance to see each other again,

May your vision be grand, your journey epic and your legacy significant!

See you soon. Cheers. Bye!!

— End Transcript —


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