How to avoid business failure: strategies and support for success
The entrepreneurial experience is a complex and challenging path that can lead to successful outcomes and personal fulfillment. However, in business, we are also aware that many businesses face significant challenges along their way, and many of them, unfortunately, end up failing.
But what actually causes businesses to fail? What are the critical factors that can endanger the survival and success of a business? More importantly, what are the strategies and actions that businesses can take to avoid falling into the trap of bankruptcy?
We discussed this in our webinar ” Why do companies fail? ” last May 16. Thanks to the participation of Dr. Gianluca Rossellini and Dr. Michele La Torre who provided us with valuable advice and practical strategies that companies can adopt to avoid bankruptcy and ensure sustainable growth.
Reasons leading to business failure
Companies fail for a variety of complex and variable reasons. It is important to understand the challenges they face and the strategies they can adopt to avoid failure.
One of the most prevalent problems isover-indebtedness. Often, businesses try to survive by accumulating additional debt. However, this strategy can prove extremely risky and, unfortunately, often results in further financial difficulties rather than solving existing problems.
It can result from a variety of causes, such as inefficient financial management, poor business planning, failure to control costs, or dependence on financing for day-to-day operations. When a company finds itself in this situation, it is critical to proactively address the problem and take corrective measures to avoid long-term negative consequences.
One of the first actions to take, is to carefully analyze one’s financial situation. This includes an accurate assessment of all accumulated debts, including interest and maturities. It is important to fully understand the level of debt and ability to repay based on revenue and available resources.
Next, a financial restructuring plan must be developed that includes measures to reduce costs, increase revenue, and stabilize the overall situation. This could involve negotiating more favorable repayment terms with creditors, reducing unnecessary operating costs, diversifying revenue sources, or introducing new marketing strategies to boost sales.
It is crucial that the company learn from past mistakes and develop a healthy financial culture. This involves better planning, constant monitoring of finances, adoption of debt management policies, and increased awareness of financial risk.
External factors leading to failure
The challenges companies face go beyond debt and require careful management and strategic planning.
Incorrect investments are one of the most common challenges. When investment decisions are made without thorough evaluation or a clear growth strategy, companies can find themselves committing valuable resources to projects that do not generate the desired return. This can lead to losses and weaken the company’s overall financial position.
In addition, changes in the global landscape may pose an additional difficulty. Events such as wars or increases in raw material costs can adversely affect the performance of business operations. Rising raw material costs, for example, can reduce profit margins and put a strain on profitability. Businesses must be ready to adapt to these changes by closely monitoring external factors and adopting flexible strategies to mitigate risks.
Thorough strategic planning is essential to avoid difficulties and ensure long-term success. Carefully considering growth objectives, planning the necessary resources, analyzing risks and developing clear action plans are key steps. Theuse of digital software and tools can be a valuable support, enabling more efficient process management, better resource allocation and accurate performance evaluation.
Financial education and strategies
Despite the efforts of agencies and associations, many enterprises continue to find themselves in bankruptcy situations. This reality can be attributed to several factors, including the widespread lack of financial education among both the population and entrepreneurs.
In particular, in Italy, it is still lacking in both households and businesses. This lack can lead to incorrect decisions and poor management of corporate resources. It is therefore crucial to promote greater awareness and develop sound management skills in order to ensure the sustainability of enterprises.
Fortunately, significant progress is being made to address these issues. Italy’s business crisis code is an important step forward in raising awareness of financial management and strategic planning among companies. The code requires the adoption of proper administrative, accounting and management arrangements in order to avoid liability for entrepreneurs in the event of business failure.
The main objective is to provide a regulatory and guidance framework that promotes prudent financial management and informed strategic planning. This implies the need for rigorous financial monitoring practices, proper risk assessment and careful management of available financial resources.
The Business Crisis Code represents a valuable opportunity for Italian companies to review and improve their financial practices, enabling them to prevent situations of excessive debt and take timely corrective measures.
However, the lack of financial education and management skills is still a significant problem for businesses, both in Italy and globally.
We have identified multiple causes that influence these issues, but in the end they all trace back to financial issues and can result from planning deficiencies, management problems, competition , or market situations. Basically, any element, whether internal or external to the company, can have an impact.
In terms of solutions, our DigitalSuite Study Center was created to understand and observe the market together with specialists in order to identify the real needs of companies and develop concrete support tools. We looked at this context, examining both external and internal factors within the company, to understand what elements can help manage business crises once they occur, that is, when entrepreneurs or managers perceive difficulties.
But to understand even better the preventive solutions to anticipate crisis situations, both in terms of tools available to the company and operational procedures, it is important to consider the future for growth and carefully assess internal sustainability. Therefore, adapting to external changes and managing all aspects of business organization constructively becomes essential.
In our Study Center, we have analyzed and grouped all phenomena occurring within the company into a control panel that includes preventive and reactive measures. The difference lies in acting to prevent emerging crisis situations or addressing them with timely actions.
Therefore, the opportunities that a company must build to be competitive concern the tools and procedures for preventing and managing crisis mitigation or related signs. Competitiveness in the market comes from the ability to adapt liquidly and flexibly, both in preventive and reactive management of events by constantly analyzing them. Timeliness and effectiveness in taking corrective measures to successfully manage these situations and avoid business failure are critical.