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Characteristics of an unhealthy business can gradually overtake company culture, finances, logistics, and development. If not carefully recognized and addressed, subtle negative traits seep into an organization, stifling growth or instigating ruin. To guide management – and staff members – in recognizing harmful traits, we explore the characteristics of unhealthy business culture, unhealthy finances, and the benefits of a Business Health Assessment.

Unhealthy Business Culture

Corporate culture has grown increasingly important in recent years. A unified company culture contributes to the value and identity of your employees and business. Strong culture attracts and retains better talent, attributing to a unique chemistry among team members. Customers and clients appreciate a fun, generous culture and brand identity – often leading to lasting loyalty and promotion.

Of course, unhealthy corporate culture often leads to opposing results. Thus, identifying and rectifying harmful cultural traits is crucial for the overall health of a business. Take note of a few common characteristics below.

Your Business Does Not Have or Follow a List of Core Values

A complete lack of company core values is concerning. Core values drive company growth and direction, providing employees with a sense of purpose and identity with the organization. If a set of values are not prioritized, subcultures have freedom to form and challenge future success.

Companies with a set of core values must be led by management. Senior and middle management must lead by example, following the established list of core values. Employees will follow directions provided, positive or negative.

Be mindful of the existence and implementation of core company values.

Gossip & Unhealthy Competition Pervade the Office

Chemistry among team members is crucial to effective, efficient work. Gossip divides, forming cliques that turn one employee against the other, and forming an atmosphere of distrust.

Unhealthy competition breeds similar results. While healthy competition drive employees to perform at their best, unhealthy competition can result in animosity – ultimately dividing team members and forming a foundation of rivalry and suspicion.

You Experience a High Turnover Rate

High turnover rates are another critical red flag, signaling unhealthy company culture. Simply put, bad corporate culture turns away talented employees and prime applicants. According to a Robert Half study, one-third of workers would rather forfeit their dream job if the company culture clashed. Similarly, employees leaving your business in rapid succession often indicates an escape from an unhealthy, even toxic culture.

Unhealthy Business Finances

Evaluating the characteristics of poor financial health begins with understanding good financial health. Management should consider the following questions.

Is Your Revenue Growing?

A simple evaluation of financial health is your profit-and-loss statement. Do you see a clear increase in revenue, month over month and year over year? Even if extreme growth is not evident regularly, any upward movement is positive.

Plateaued or downward trending business revenue is a clear red flag.

Are Your Expenses Staying Flat?

For the most part, business expenses should remain flat, only increasing in line with revenue growth. For example, if sudden, significant growth causes your revenue to increase by 2%, your expenses may increase as well – but no more than 2%.

Have you noticed significant growth in business expenses without a similar revenue increase? Consider this another unhealthy financial trait.

Can You Demonstrate Positive Long-Term Growth?

A financially healthy company balances revenue invested into the business and cash in the bank. A nonexistent, low, or stagnant cash balance indicates your business is unprepared for positive long-term growth. If a significant, unexpected expense arises, you should be equipped with enough cash to prevent incurred debt.

Is Your Customer Base Both Consistent & Growing?

Both new customers and repeat clients are signs of a healthy business, signifying multiple avenues for generating revenue. Your business is protected from changing buying patterns.

Are Your Ratios In-Line?

Solvency Ratios:

Paying attention to your solvency ratios is also important, specifically your debt-to-asset ratio and debt-to-equity ratio. Simply put, your solvency ratios measure how much your business owes against how much it is worth. Of course, a low number is best.

If your debt ratios are high, your business is likely in a financially unhealthy place.

Activity Ratios:

Activity ratios measure the management of your business assets. Your Asset Turnover ratio divides sales by assets. Look for a high turnover ratio. Your Inventory Turnover ratio divides your cost of sales by average inventory. Once again, look for a high turnover ratio. Finally, your

Operating Expense Ratio:

This divides your operating expenses by total revenue. A lower ratio demonstrates financial efficiency.

Evaluating your financial health involves measuring these ratios to ensure your assets are in-line.

What is a Business Health Assessment?

Evaluating the health of your business is a complex, involved task. Many business owners focus on the immediate needs of employees, customers, and logistical tasks, without the time or expertise to evaluate the comprehensive health of their enterprise.

A Business Health Assessment is a powerful tool for business owners. Defined as a comprehensive evaluation of crucial business elements, a business health check provides enterprise owners with potent questions and a diagnostic outcome that sheds insight into strengthening their business.

What is Involved in a Business Health Assessment?

Working with a business advisor, the owner is led through every aspect of their business. Business owners answer a collection of insightful questions then are guided through an assessment process. A few key areas included: internal controls, compliance-tax, legal issues, insurance, banking, budgeting, reporting, and value-added services.

With gained insight, action can then be taken to improve the overall health of your assessed business.

DHJJ: Professional Business Health Assessment

At DHJJ, we understand the importance of knowing your company is heading in the right direction. Our accounting and consulting professionals bring experience helping growth-minded businesses into every service – including a comprehensive Business Health Assessment. We provide business owners with valuable information and identify unique opportunities otherwise left uncovered.

Contact us today to see if a Business Health Assessment would benefit your company. Our team is available at (630) 420-1360 or via our online contact form. Please do not hesitate to get in touch.

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