Issue No. 65 - June/July 2012
Managing through challenging times
by Kishen Vijayadass
Australia is indeed the lucky country, having arguably navigated through the Global Financial Crisis strongly compared to other advanced economies. Since then, the discussion has centered on the two-speed economy; mining & everything else.
There certainly are quite a number of sectors of the economy that are struggling and business and consumer confidence leaves much to be desired. There seems to be increasing rates of business failures and anecdotally there seems to be many more businesses which are struggling to see a long term and prosperous future.
Reasons for business failure
There are many reasons why businesses fail, and whilst some companies may fail for unique reasons, there is a significantly larger proportion which fails for factors that can be categorized. Here’s an attempt at categorizing the more common reasons for business failure:
Adverse Market Changes
• Changes in demand for the product or service, particularly in fashion and technology, or the often discussing online effect
• Changes in legislation, for example carbon tax legislation resulting in extra costs to build new homes
• Location & environment, for example new retail outlets are opened next to existing ones
• Contraction due to recession
• Over-capacity caused by no barriers to market entry
Personal characteristics and circumstances of management
• Weak & unskilled management unable to make difficult business decisions
• Breakdown in relationship between shareholders
• Personal problems of the Managing Director affecting his/her ability to manage the company
• Inappropriate succession planning
• Self-delusion concerning specific asset values
Costing, accounting and profitability
• Inability to cost products accurately
• Ignorance of the market and under-pricing of goods and services
• Imprudent accou...