Every day there are innumerable businesses filing for bankruptcies especially small and medium sized businesses. Despite their best efforts and dream of making it big, various issues conspired to shatter their dreams. According to the Association of Small Business, generally approximately 50% of new startups go under within two years.

Apart from mismanagement and partnership squabbles leading to early demise of some businesses, there are numerous other factors responsible for businesses turning belly up.

Notable issues which can be overcomed if there were proper planning are:-

1) INSUFFICIENCY OF CAPITAL

Lack of capital or inadequate cash investment would be a great recipe for disaster. Such businesses cannot a) survive an economic downturn as is happening today, (b) cannot reap economies of scale by purchasing in bulk from suppliers and consequently they cannot be price competitive; (c) cannot afford to advertise periodically to capture customers’ awareness and (d) cannot hire sufficient competent staff to manage and provide quality services to customers;

2) POOR LOCALITY

Just like the five “c”s in credit assessment on the viability of a business setup, the catchment area is important for any businesses for it determines the volume of sales to be generated. A bad catchment area would not produce good returns on investments (ROI) thus affecting the viability of the businesses. The size of the market certainly affects sales volume and consequently the bottomline. Locality is all important;

3) QUALITY OF PRODUCT OR SERVICE

Competitiveness is not only reflected in the pricing of the products or services but also the quality. Consumers may pay more for quality. Sometimes businesses fail to consider the suitability of products offered in relation to their catchment area. Trendy and high quality products appeal to the affluent market and products ought to reflect such sentiments if businesses were to profit in such a market;

4) INABILITY TO EMBRACE INNOVATIONS

Businesses which cannot adapt to changes in the market condition or are slow to grasp new technologies would not be able to compete effectively and may ultimately pay the price for being obsolete. In today’s business environment, it is the ability to stay ahead of competitors in terms of product development, pricing, delivery and timing that determine the success or failure of businesses. Market intelligence is crucial for any businesses to stay ahead of competitors;

5) ADVERTISEMENT AND BRANDING

Businesses that stifle their advertising budget would not be able to create the necessary image or branding for their products or services. They must portray the image that reflects their business. Even the neighborhood pharmacies also need to rebrand and create the professional image of trust that consumers can identify with. Market share can only be maintained or enlarged by reaching out to consumers chiefly through advertising;

6) LACK OF COMPETENT STAFF

Business owners must first of all be familiar and competent in the businesses that they are involved in otherwise they can hire competent managers to oversee their businesses. Staff are the human assets of the company and are the key determinants of the success of the businesses;

7) BUSINESS KNOWLEDGE AND EXPERIENCE

As mentioned business owners must know the nature of their businesses in order to maintain their standard and competitive edge. Competency would be reflected in the smooth running of the businesses streamlined solely to serve the needs of their consumers;

8) OVERSTOCKING AND OBSOLETE STOCK

Keenly allied to the above is the stock position of the businesses, which can only be best implemented if the businesses are managed by competent managerial staff or owners themselves who are well experienced to identify saleable and fast moving products to avoid holding stocks which may later become obsolete and unsaleable. Holding obsolete stock will bleed the businesses of its financial position as money is sorely tied up and interest costs would accumulate. The opportunity cost of having obsolete stock is immesurable. Overstocking is also disdained as it will lock up capital resources which maybe used for other ventures apart from the interest cost incurred on the holding of such stocks.

One or a combination of the above factors may bring down any businesses. Businesses must be market vigilant and for businesses to remain competitive, businesses must have adequate capital or at least secure loans that incur low OR inexpensive interests so that monthly payments towards the loan are low and should not jeopardize the cash flow of the businesses. Alternatively when faced with inadequate cash position, businesses may consider inviting new participants or venture capitalists to inject funds to improve their cash position in order to remain afloat. Another alternative is to downsize in terms of staff strength which is a very unhealthy practice since the repercussions will directly affect the efficiency of the businesses to generate sales and profit.

Needless to say, all businesses must be in tune with the pulse of the martket to envision market needs in order to stay ahead of competitors.