How to Prevent a Company from Failing
By Jim Lindell
A common fear of many business owners is that of losing their company. According to the SBA, over 50% of small businesses fail in the first year and 95% fail within the first five years. Some important reasons for this lack of success are:
1) Lack of vision and purpose by principals
2) Failure to establish and/or communicate company goals
3) Failure of the CEO to concentrate on strategic rather than technical issues
4) Inability to make the difficult decisions
5) Poor market segmentation and/or strategy
6) Lack of market knowledge / competition
7) Over dependence on specific customers or individuals in the business
8) Lack of management systems
9) Lack of financial planning and review
10) Inadequate capitalization
11) Fearing the boss more than the competition
12) Too much risk
13) A dangerous corporate culture
14) A dysfunctional board (advisory or formal)
Even though many of the above conditions may be in operation, companies still turn a blind eye to the problems. There are some excellent preventive measures that a company can employ to help improve their chances of success. One useful tool that can be a warning sign of impending danger is the Altman Z-score. The Z-score is a predictor of bankruptcy. When properly applied, the indicator can alert a business owner that all is not well and the future is in jeopardy (note: if you have never encountered the Z-score, “google” the term or email the author). Another excellent tool is having an advisory board that has the fortitude to disagree with the owner. Unbiased and candid advice is priceless in helping a company navigate the ever changing business environment in which we all operate. This need can also be met by participating in a professional CEO group such as TEC. Finally, too many business owners give lip service to their strategic planning process. Be sure to invest in the process, map your direction and follow your path to success!
