Here we are now at the mid-point in the process of financial recovery. We’ve talked about recognizing that the business is in trouble, getting your core team of executives to get some strategies figured out, running some generic treatments to eliminate certain options, and also putting together a plan of the available treatments that you can apply to the situation, from the more benign to the riskier ones. So now we go on to Step 6: Detailed Diagnosis.
Further to the Initial Diagnosis made in Step 4, which focused more to the immediate cause(s) of the financial distress, this step’s focus is to get to the root causes of financial distress. This is absolutely necessary to hammering out a lasting recovery.
Similar again to the initial diagnosis of the immediate cause to determine the best fiscal first aid technique, the detailed diagnosis of the root cause should utilize a structured framework. Noted finance scholar Mr. Charles H. Levine designed such a framework. It has four dimensions of potential causes of distress. See here:
At this point you’re doing the big digging and the big diagnosing. Only then do you understand how to apply the treatments you came up with in Step 5. It sounds like we’re going back and forth, right? Why not just do the diagnosing to begin with and then do the treatments after, you say? Because the back-and-forth is part of the process. It forces you to always dig deeper and come up with new solutions based on new information gained from the last step – or ask new questions based on that new information. And there is a method to the madness, there is an order to be found within the chaotic-ness of it.
So go ahead and make your detailed diagnosis now because the second half of the 12 steps is about taking action – starting with Step 7: the Recovery Plan.
As always, make sure to make an informed decision at all times,