There are many external factors that may suddenly change the way in which a business operates. Sudden discoveries of unknown health hazards or environmental risks associated with an entity's main product can undermine its future. New products introduced by competitors can cause markets for existing products to suddenly evaporate, as can the loss of a key franchise, license or patent. Loss of a major customer or supplier may also signal impending problems. As was mentioned earlier, in some industries, such as the financial sector, it is possible for entities to be adversely affected by a chain reaction or domino-effect. Also, changes in government and related policy changes can undermine the future of an entire industry.

Communications with lenders can reflect financial difficulties. Some studies suggest that either an unusually high frequency of communications with lenders or avoidance of contact with lenders can indicate financial distress. Communications with analysts, news media and regulators can also reflect financial difficulties. Product-related announcements indicating technical problems with products, premature announcements of new products, major new investments or intended acquisitions may indicate that an entity is in financial distress.

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