How would I easily guess which of two companies would go bankrupt first?
My guess is to somehow determine how much they have in the bank, add in their sales income; then subtract out the burn rate until it reaches zero.
I recognize this is all a guess, but I’m looking for the best I can do.
I probably can’t ask the amounts directly but perhaps I can ask about ratios of income to burn rate to make the comparison
I’m looking to change jobs and don’t want to jump from one sinking ship to another; so the real question is how can I make an educated guess as to which one will be in existence longest? (assuming I get offered a job, and I can ask some pointed questions)
You can’t tell who is truly going to go bankrupt first. Some companies seem to peddle along for decades with little or no profit. Sick companies may become well again if they release a great new product. Companies can also get cash infusions from venture capitalists and new stock offerings.
You can tell how healthy a company seems to be. If the companies are of any size, there should be analysts reports on the web. You can also look them up on a stock trading site like E*Trade to get a quick snapshot.
That’s kind of a funny question, as most people don’t jump towards a business that they have questions about. But I’m guessing that you’re talking startup companies?
Rather than “how long til you go bust?” (assuming a startup), you probably want to “what’s the burn rate?”, “how much funding do you currently have?”, “is there a chance of additional funding?” and “what are your outstanding debts?” For a real startup, it’s not out of line to just ask, straight out, “How long can you go without a product/sales?”
However…most companies are going to be somewhat reluctant to open their books to that degree. Even the existing employees will have vague or even completely inaccurate knowledge about the company finances. Part of being management of a startup is being optimistic about the prospects of the company to the point of (and often slightly beyond) lying outright to the employees.
If the bottom line is really sucking, it’s doubtful they’ll be hiring anyway. However, I’ve been in situations where that did happen, simply because an expected source of funding dried up, or the board of directors took emergency measures to cut down the burn rate.
There are warning signs of a company in trouble. Fringes tend to be cut first. So if they used to get free soda and munchies and have beer blasts every Friday and now there’s a soda machine in the lobby, that’s not a good sign. If the company is no longer matching IRAs or has been reducing vacation time, that’s also a bad sign.
My first thought would be to try and ask an employee or two a few questions. Things like the existence of quality training and or on ongoing education support usually imply a desire to see long term return on investment. Those types of programs as well as things like company holiday parties are often the first to go.
Does the place look like they take any pride in their work? Clean, organized, neatly dressed staff?
Ask to see the books. I don’t think you’re gonna find any useful financial information in any other fashion. Before I started with the company I’m at now, I was shown all (or all they wanted to show anyway) the financial information. I didn’t have to ask to see it, but since this place hadn’t opened the doors for business yet (or purchased any equipment, or leased space, or anything else; I think all we had was a damn logo.) they wanted to mitigate such fears in prospective employees. They wanted us all to know they were sufficiently capitalized that of things went bad, the doors weren’t gonna be closed next week.
Other than that, I guess all you can do is make your own independent assessment of the relative merits of each company against the marketplace. If they’re not gonna offer up private financial information voluntarily, you don’t really have a legitimate means of getting it. Other than sleeping with their accountants, I guess. You could start by breaking down the market into the individual services that make up that market. Then take those core services and see if you can assess how well each of the companies is prepared to fill those needs. You can do this by investigating the skills of their employees to the extent that information is available. My company actually does this as a regular effort every year or so to assess our own market position. It helps us find our weaknesses, where we might be underserving the market, and to better promote services over a competitor’s. Look at any websites that may be available for company news and employee statements of qualification (SOQ’s). You can find out what they’re doing who inside the company is likely doing it. Then, look for any names you find listed as authors of articles in the trade mags. And also as officers, or other active participants, in professional associations/societies. You might also try some suberfuge with respect to the professional associations. Pose as a person potentially moving into the area of the companies and query the local chapter secretary, or some other administrator, about the companies. Might get a useful outside perspective that way.
Actually, lots of companies do this, or something very similar to it - generally called a “Skills Matrix,” or some other such jargon. This kinda thing has other more strictly internal uses, though. It can help a company with their staffing. If they find themselves deficient in some core area, then they can determine if hiring or training is prudent.
If you can’t get any financial info directly from either company and they aren’t brand new ventures, you might also check to see if they have a D-U-N-S number from Dun & Bradstreet, and then pay a small fee for a report to get a sense of whether they are paying their bills on time, annual company sales figures, and so on. You can get more detailed reports, too, although those cost more of course.
Excellent question. it is relevant, as the ex-ENRON executives are now on trial…and its getting interesting! basically, what ENRON did was hide staggering losses with creative accounting. and they managed to bamboozle their audtors, investors, Wall Street Whiz kids, etc. Or take the (Italian) company PARMALAT-one day, they just announced tothe world that they had NO cash! Sometimes, its hard to take a companie’s statements at face value.
The first thing I’d do is ask to see their business plan. I’ve read some that I call “kamikaze plans.” They have just enough gas in them to get the owners to an “exit strategy” rather than long-term growth.
Secondly, look at the compensation package they’re offering. This isn’t truly indicative, but if they’re asking you to take guaranteed stock options in lieu of salary, it may be because they don’t have enough capital (yet) to pay competitive salaries.
Check with their customers. Are they getting their service/product delivered and installed in a timely fashion with reasonable quality?
Ultimately, it’s going to take several different indicators and your sense of how everything is fitting together.
I have enough contacts in town that I can ask local vendors if a potential employer is keeping thier account current…bad sign if not. Even if they don’t go bust, it is a pain when everything you need to order is held up due to delinquent status.