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Early Warning Signs Point to Possible Business Failure

Equally applicable to small residential builders, who need to watch their businesses in both good and hard times, Davidson & Golden, P.C., a Tennessee-based accounting firm, has identified 10 early warning signs that a company may be headed for failure:

1. Growing too fast
2. Obtaining work in a new geographic region
3. Dramatically increasing in single job size
4. Obtaining new types of work
5. High employee turnover
6. Inadequate capitalization
7. Poor estimating and job costing
8. Poor accounting system
9. Poor cash flow
10. Buying “dumb” stuff

The accountants say businesses don’t necessarily need to panic if they match up with two or three of the above. Their experience with failed firms shows that these are among the most common mistakes they made.

Just be cautious about falling into too many of these traps, Davidson & Golden advises.

To read the entire article on which the above was based — “Ten Most Common Causes of Construction Contractor Failures,” by Robert A. Davidson, CPA, and Martin G. McGuire,CPA — click here, and go to page 6.

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