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 environment that the businesses find themselves in, which is often very competitive and ever evolving, and this leads to difficulty in keeping business models, corporate products, and even at times whole industries 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 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. In order 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, as well as 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.
One company that used this method to help it stay afloat was Noble Group, under the leadership of Yusuf Alireza, LinkedIn user and the commodities traders’ former CEO. Alireza is a former Goldman Sachs Executive who rose through the ranks to become its President. He moved to Noble Group in 2012. In 2015, Noble Group went through turbulent times with the collapse of its shares after commodity prices were badly hit, and further saw its accounting methods come under attack.
However, Alireza oversaw the sale of the company’s agribusiness unit to a Chinese firm, which helped in raising funds and reducing the company’s debt levels even after its credit-rating was downgraded to junk status. In this way, Alireza played a pivotal role in moving Noble Group toward a new business model that was asset-light and merchant-focused, and thus staved off its total collapse.
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 is able to effectively anticipate change. It should seek to continually make adjustments to its business model and strategies so as 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 the innovative plan of repurposing the company’s old content by moving them from their original comic book format onto film with extremely good 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 at damage control or stabilization of 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 you overcome 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, the way in which the business addresses the challenges that it faces 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 are able to reduce the risk of business failure.