Business Failure, Here are some traps to avoid:
With the probable crisis that the pandemic will incur, many businesses will fail due to a lack of help from their respective governments or because of their bad internal management.
This article will advise you in avoiding regular mistakes that CEOs, managers, and entrepreneurs make, which often cause businesses to fail.
1- Inadequate Management of the company’s resources:
Bad financial management:
Mathews argues that a jaw-dropping number of CEOs lack financial know-how and it often leads to business failure. There is a “set of CEOs that trust overly confident financial forecasts and fail to raise capital if needed” (Mathews, 2018).
Some recent examples illustrate the importance of having good financial management, indeed, Thomas Cook’s UK branch has filed for insolvency in recent months to extricate the major owner from financial ties up and related liability.
Bad Employee management:
One common mistake that CEO's do when their company is failing is that they fire employees in the hope of lowering their costs. Of course, when firing employees, companies will lose experience and knowledge that will profit to some of their rivals. But one aspect that is particularly unfortunate is that most Human Ressource Manager's, as well as CEO's, do not know which employees are the most inefficient or which production plant provides the least cost benefits which often leads to errors made by the executives.
2- Lack of leadership and general management:
CEO’s admit that they sometimes try to run the company on their own or that they do not know how to lead their company during uncertain times.
As noted by Sull, companies should focus on renewing their process or their management instead of revolutionizing it.
Historically, many companies felt forced to change their business aspiration when the environment changed and failed in doing so. Other companies such as Goodyear made a smooth transition to radial tires and emerged as one of the three major tire manufacturers.
3- Lack of planning and execution:
Few had developed a well-articulated mission, a defined set of values, or a three-year vision. Fewer took the time to develop written plans, to anticipate, prepare for opportunities, or calculate the risks associated with their plans. And even if they managed to develop a strategy, many times it was not executed.
Successful CEOs understand the need to measure their goals, having the ability to gather the resources, then delegate and hold individuals and divisions accountable for achieving those goals (Mathews, 2018).
4- Lack of market research:
There are a handful of companies that did not analyse the market they target or that did not consider enough consumer behaviour as well as market dynamics. Most companies put the sake of their business at risk when they do not consider these metrics.
Examples such as McDonald's in Asia could be used as they failed to penetrate these markets because they did not readjust their strategy. In Asia, their prices are much more expensive compared to street foods and instead of offering affordable food, they are considered as "luxurious".
These points represent 70% of the reasons why a company fails according to the Australian Center for Business Growth. It shows how important having a well-settled strategy is and how not having one could lead to the failure of your business.
For more information on how your business could avoid failure contact us today!
Article made by SEPEC CONSULTS SAS
Horton, M. (2019). The 4 Most Common Reasons a Small Business Fails. [online] Investopedia. Available at: https://www.investopedia.com/articles/personal-finance/120815/4-most-common-reasons-small-business-fails.asp [Accessed 16 Sep. 2020].
Matthews, J. (2018). Five Reasons Companies Fail. [online] Entrepreneur. Available at: https://www.entrepreneur.com/article/321799 [Accessed 16 Sep. 2020].
Sull, D. (1999). Why Good Companies Go Bad. [online] Harvard Business Review. Available at: https://hbr.org/1999/07/why-good-companies-go-bad?fbclid=IwAR1YbK1j8PsvpVmChNEgWROpAGD_-D8h9bGOGP6NC04syB6TaozYWPc5vJI [Accessed 16 Sep. 2020].
Wagner, E.T. (2015). Five Reasons 8 out of 10 Businesses Fail. Forbes. [online] 2 Sep. Available at: https://www.forbes.com/sites/ericwagner/2013/09/12/five-reasons-8-out-of-10-businesses-fail/ [Accessed 16 Sep. 2020].