In any economy, you will find that business failure inevitably afflicts a certain percentage of businesses in the corporate sector. This is usually due to the businesses’ environment, which is often very competitive and ever-evolving. Then there are the challenges associated with events outside of your control, e.g. economic downturns and pandemics.
To survive, businesses need to be nimble and quick to change tact to remain viable and reliant. Your business may need to change sectors, too, as whole industries can sometimes become sustainable.
Global and regional factors also have an effect on business stability, either promoting it or undermining it.
These factors include political factors both on the global stage and within the region, technological factors that can very easily disrupt an industry, social factors that are mainly prominent at the regional level, as well as economic factors such as a change in demand and supply, change in living standards of consumers, prevailing interest rate levels, and inflation.
As a result of the changing nature of these factors, more and more businesses are struggling. There are, however, ways of minimizing business failure.
Understand the state of your business
As a business owner, you need to understand how the business is doing in terms of performance, where it stands within the economy, and where it is going. To be successful, you need to be forward-looking, seeing beyond the business’s own market or industry cycles as well as the wider economic cycles, and adequately plan for them.
These plans include developing achievable and sustainable business models and strategies and engaging actively in the budgeting process and that of planning and cash flow forecasting. It also involves setting medium and long-term plans that are clear and achievable. Furthermore, you need to stay on top of the day-to-day aspects of the company’s financial management.
Ensure the business remains relevant
Your business needs to remain relevant in the marketplace by continuing to innovate and remaining constantly focused on its environment so that it can effectively anticipate change. It should continually make adjustments to its business model and strategies to remain competitive and exploit new opportunities.
A company that has managed to remain relevant over time is Marvel Comics. Founded in 1939, the company has had its shares of ups and downs, and in 1993 almost came to the point of total collapse.
However, the management came up with an innovative plan to repurpose its old content by moving it from its original comic book format onto film with outstanding results. Furthermore, the company started its own production studio, which ensured that it kept the bulk of the profits that the films made at the box office.
Communicate effectively with stakeholders
You need to be honest and straightforward with your key stakeholders, including employees, financiers, and suppliers so that you can build trust, which in turn may translate into them supporting you through the current hurdle that your company is facing.
Develop a sustainable restructuring plan
The restructuring plan that you formulate for your business needs to focus on long-term goals and should not simply aim to damage control or stabilise the company. As such, you need to see what staff levels you should retain to ensure that the business continues to be viable even after overcoming the current difficulty.
Furthermore, you need to determine the optimal period to negotiate for longer credit terms with suppliers, which will not result in them pulling out support for your business. The same needs to be done for all other key stakeholders.
Virtually all businesses go through periods of distress at one time or another. However, how the business addresses its challenges is critical in ensuring its survival or collapse. Management teams need to develop the right business strategies, such as those highlighted above, to ensure that they can reduce the risk of business failure.