In less than a month, we will have the final statistics for this year, and things do not look promising. According to the American Bankruptcy Institute, until last month 714,138 bankruptcy petitions were filed. That’s close to the 772,085 of last year. What is happening in our country? We are not going through easy economic times, that’s true, but maybe the slowdown is not the only one to blame for this problem. Probably, behind that high rate, there is a series of multiple causes, and many of them are social and cultural. We are going to analyze some of those in this post.
One of the most important causes – and the one that arouses more concern among experts – is the lack of leadership among young entrepreneurs in our country. The management usually has an incomplete view of all the components of the company and their interrelation, the focus is usually on the areas that attract us, individualism is encouraged without wanting to have to resolve the issues “quickly.” Leaders are afraid to involve employees in decisions and find it difficult to manage frustration when external factors impact the business.
On the other hand, a classic error among young entrepreneurs is not being able to build a good team; especially, one that endures in the trench during tough times. It is not only easy to find people with a vocation for permanence, who know how to persevere in any circumstance. It is simply not easy to have the sense of smell to recruit competent personnel. There is a lack of training regarding leaders and employees. There is no fair salary structure where people reward the experience over actual capability. There is too much resistance to change since the advice of external experts to the company is not usually well-taken. People fear their ideas to be stolen, and that’s their excuse.
Undeniably, the market for goods and services is one of the causes of this problem, mainly, if we consider its volatility. Normally, customers are the most affected by these high and low peaks, as a precarious organization of the company and poor training leads to poor customer service, not considering their needs and complaints in the design of the product or service. There is also a lack of focus on a specific type of client, there is generally no sales plan that considers demand peaks and job losses. They tend to avoid investment in promotion and market research. Young entrepreneurs are tremendously ignorant when it comes to the competitive advantages and weaknesses they have. That’s a terrible fail, indeed.
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Additionally, planning problems tend to be a constant in small businesses. Usually, a business plan is missing, long-term objectives are not defined, and, if there are short-term objectives that have not been communicated to employees, an analysis of potential risks and prevention of them is frequently lacking. The main consequence of this is the growing crises that happen when the constant conditions of the market change abruptly.
Similarly, the productive and service processes are not defined or organized considering the normal operating times. There are high levels of waste, high costs for rework and errors, lack of technical capacity due to the inability to recruit the right people. There is a general bad management of inventories, quality controls are missing or there are too many, and these problems are solved late or even hidden.
Many people blame the suppliers, and although it is not fair in several cases, they may not be entirely wrong. Entrepreneurs do not usually evaluate their suppliers correctly, nor do they usually monitor their performance. Their selection is mainly by price, friendship or intuition. The consequence: Chaos and lack of payment to suppliers. In some cases, there are difficulties in obtaining customized supplies when there are not long-term relationships with suppliers (and that happens quite often.) There is also over-stock storage leading to high immobilization of capital, high maintenance costs, and obsolescence losses.
Now, when it comes to results, the lack of management of indicators leads to the results being observed intuitively on a daily basis by mere observation of the owner by comments from the middle managers, without following a monthly trend or make an analysis of deviations versus the objectives set. In the smallest undertakings, fixed costs are not considered when defining total costs, and many simply do not know how to differentiate personal expenses from those related to the business, which makes it difficult to evaluate the profitability of any commercial activity.
Over-indebtedness is also one of the reasons why companies may be in danger. Requesting loans for amounts greater than those that can support the company or allocate the money to a different use to that originally planned, is a failure that companies make and can cost them dearly.
Finally, not having an order, nor a structuring on the operation of the company in fundamental aspects such as administrative and financial, can seriously put any company, so it has good sales levels. Failure to manage resources generates chaos and weaknesses in the face of competition.
* Featured Image courtesy of energepic.com at Pexels.com