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Causes for corporate failure
1. Poor management
2. Overtrading which results in sufficient working capital.
3. High gearing in expectation of growth which does not happen
4. An economic downturn effecting the company or industry
5. The end of the life cycle of the firm
6. Loss of major customers which impact on the profitability and cash flow of a firm
7. Company does not respond to changing market conditions
8. Large investment in assets which cannot be realized due to changed market conditions.
9 deteriorating profitability and working capital ratios.
The first cause of business failures you must watch out for is high debt ratio. If your business is being owed much, maybe by giving too much credit to customers, then your business is at risk. Also, if your business is heavily indebted, then it’s at risk of folding up. An antidote to this is for you as an entrepreneur to always carry out an acid test ratio and keep a keen eye on the debt to equity ratio.
The second cause of business failures is high level of mismanagement. If your key staff lacks professionalism, then your business is in trouble. Since your staff are in charge of running the day to day affairs of your business, their professionalism should not be compromised for anything.
To me, selecting or having an incompetent employee and holding him/her responsible for the key business areas, is the most dangerous factor that may collapse the whole business.
So, incompetence is an evil that can engulf your investments, your savings, and even what have keep for your rainy days.
