Is my business on the brink of collapse?

November 21, 2022by usman0

This question haunts the minds of many entrepreneurs, especially as they sink into the cycles of their private business and seemingly endless requirements of expenses, employment, chasing these requirements like a headless chicken, putting out fires everywhere.

Many entrepreneurs when they face these predicaments see the solution in pumping more money. Unfortunately, in most cases, they keep on it without any sign of ending. The fact is that they do not know the solution because they do not know the problem.

Throughout my career, I encountered similar cases, and it became evident to me that the factors listed below may constitute 90% of the predicaments that face small businesses, in particular, and may lead them to collapse.

Poor infrastructure: As stated above, to get solutions, we must know what the questions are. Most of small businesses do not have the infrastructure of an accounting, marketing and human resource management system, which necessarily creates a situation of loss or dispersion. Lack of an accounting system leads to random financial decisions without prioritization. Weakness of a marketing structure keeps the business in the dark as it underestimates the opinion of the customer and ignores the competition ways that would provide precious hints, especially if it has a strong presence in the market. Also, the absence of policies and procedures for human resources leads to a loss of clear tasks and work priorities, as these policies organize the resources to perform the objectives as planned by the management and effectively measure their performance regularly.

Vision blur: Starting with the design of operations mechanism, resources utilization and product shaping, whether tangible or service, most entrepreneurs lack a clear vision based on a wholistic plan with specific and tangible goals to be achieved based on milestones. In such system, coordination takes place between administration, teams and departments to assign tasks, provide operation mechanisms and a financial budget to achieve them. Meetings take place periodically to discuss such tasks and ensure achievement according to that scheme.

What distinguishes this vision and increases its chances of success lies in reliance on real information and market research, in addition to sufficient management experience and the right teams to achieve it. Yet, I’m almost certain that if the team as a whole possesses a sincere intention, chances of failure are slim, even if the general scheme is not well thought out.

Misuse of financial resources: Usually happens early in the project, especially if capital is financed by an external party other than the entrepreneur himself, such as a government, family, or non-profit organization. With financial abundance, money is spent chaotically, not based on a set budget meant to to achieve a sustainable financial cashflow. Ultimately, this drives the entrepreneur to start pumping his own money without a clear mandate. Examples of this are many, although most of them are in the establishment stage, where the project’s construction period prolongs longer than planned, or by making expensive interior fit outs, thinking this is a priority, or employing large numbers of employees, or buying many assets.

Lack of experience: Apart from the factors listed earlier, I appreciate this factor and its causes. Our passion for establishing our own business drives us to take risks, but unfortunately what leads us is our intuition, which is not necessarily correct, and which may lead to the factors above, whether some or all of them. What I can recommend to eliminate the aftermath of this factor specifically, is to seek out experienced resources to help establish and run the business and not gamble with decisions with unpredictable consequences.

Ego & Stubbornness: Although this factor was mentioned at the bottom of the list of factors that cause business collapse, I consider it one of the most common factors. Combining this factor to any of the above means necessarily a rapid collapse. Ego & Stubbornness draws one-way street if not based on facts and studies. It also necessarily means not being guided by opinions of business teams or subjects of experience. Any attempt to assist in decision making is denied, which leads to the negation of options and boxing the business.

So, the question remains: Is my business on the verge of collapse? If any of the above factors are present, you may be at some point heading towards the abyss, while the distances may vary. In addition to the necessity of an open mind, the availability of infrastructure may be the beginning of the solution if it was possible to maintain a sustainable cash cycle by working or injecting additional capital according to a well-thought-out plan to achieve sustainability. It is also important to have the right tools that allow creating a road map in the right direction.

Leave a Reply

Your email address will not be published. Required fields are marked *