Tag Archives: business failure

Business Restructuring! Do You Know When it is Time?

When do you know it is time for a business restructuring? Wait too long..it may be too late!

Restructuring TimeA restructuring, is it time? Tick, tick, tick, the clock is ticking. In less than a week payroll is due. The company does not have enough cash to pay the 200 employees and you are not even thinking about how to pay the suppliers. The credit line is fully drawn and you have no more collateral to give. What do you do? How much time does the company have? These are the type of issues the company is facing. Is it time for a business restructuring?

If you cannot meet payroll, staff will leave, the state will be notified that the employees have not been paid, and this will be only the beginning of the company’s problems.  You know that if the company does not meet payroll, the game, known as the business, is over. And this is the only the start of the problem. For a privately owned business, personally guaranteed company obligations will default, and the personal assets of the owners will be seized.

This is not so much of an extreme case. This scenario often happens. So thinking about the company from the perspective of how to avoid or change the situation is critical.  A business restructuring may be needed and now!

Business difficulties can happen quickly and for many reasons. Businesses may suffer from lost market expectations, reduced operating earnings, or severe cash flow troubles. Whether triggered by marketplace forces or internal dynamics, an early assessment and quick decisive moves will be needed to reinvigorate earnings and company value (PriceWaterhouseCoopers LLP, 2012). This is when you know that a business restructuring must commence.

Stakeholders Want Answers

Collectively, employees, vendors, bankers, and other creditors (the stakeholders), will be assessing answers from the rubble of the company to questions ranging (DiNapoli & Fuhr, 1999) from “What’s in it for me? to “What are my alternatives?” to “How did this happen and when do I get my money?” Think about it; the following questions each stakeholder will want to know:

  • The causes of the company’s distress
  • Required steps to affect an effective restructuring
  • Management’s capabilities, abilities and costs to execute a restructuring plan
  • Assessing alternatives to the restructuring and the related costs
  • Determining the goals of the various stakeholders
  • Establishing the value that can be realized from company for a restructuring, a sale or liquidation of the business

Many issues can cause business distress. Liquidity constraints can limit the business from operating efficiently. Cash flows, cash reserves and access to a working capital line of credit can result in a short-term liquidity crunch. The inability to pay employees, suppliers, and the taxing authorities can be acute. This will lead the company to failure.  A business restructuring will be required.

Economic Downturn

An economic downturn, shifting buyer taste or behavior, increased competition, ineffective operations, disruptive technologies, incompatible strategies, issues that can seriously place the company into financial distress. Left unanswered can result in threatening the organization’s existence.   A host of problems will trigger declines in revenue, customer loss, key employees, profitability, and cash flows that will lead to working capital constraints. Distressed symptoms often occur well before crisis hits and is felt. Before you know it, the company is in a death spiral. This situation is not inevitable, and in many cases, can be halted and reversed. Taking aggressive action and discovering at an early stage through reviewing the organization’ strategies and it operations efficiencies can lead to a swift, decisive action to restore organizational performance and enterprise value.  Timely action is critical in making this happen.

When a company is doing poorly that failure appears imminent, only a restructuring or turnaround can restore performance and profitability that can enhance the value of the business.

The best way to learn how to restructure a business is to study failure.  Think about it, NASA studied its mistakes to make corrections with the space shuttle program. Pharmaceutical companies and financial services companies study product design failures to make improvements, and hospitals study their service offerings to improve the quality of healthcare service. Successful companies create value for shareholders, customers, and other constituents.

Many companies that once dominated their markets later slide into corporate distress often occur. These organizations lose their touch. It is often said that success breeds failure. Companies no longer have that “mojo” that touch, which creates shareholder value. When a company succeeds, we assume that they know what they are doing, but in fact it could be they got lucky. Companies create an overconfidence bias, becoming so self-assured that they think they do not need to change anything.

Business Restructuring

A number of factors influence a business restructuring strategy to achieve recovery. From an external perspective, in most part, the competitive environment and the maturing of the industry influence the selection and effectiveness of the turnaround strategies. From an internal perspective, the severity of the financial distress and management failure is a contributing factor to formulating the turnaround recovery strategy. The choice of the restructuring strategy is a function of the company size, management perception of the external factors, but most importantly, the degree of resource availability.

For a small business, given the exceptional high mortality rate, elements of decline and failure are important. Small business failure is generally attributable to issues of management control. Performance deterioration and resource availability are critical factors of for the enterprise success in addition to the strategies chosen to, in some cases, stop the bleeding.

Two organizations that have members that can effectively structuring and implement a business restructuring strategy include the Association of Insolvency and Restructuring Advisors (AIRA) where you can find a Certified Restructuring and Insolvency Advisor (CIRA) and the Turnaround Management Association (TMA) where you can look for a Certified Turnaround Professional (CTP).  Remember…tick, tick, tick the clock is ticking maybe to your business’s decline.

References:

DiNapoli, D., & Fuhr, E. (1999). Trouble Spotting: Assessing the Likelihood of a Turnaround. In D. DiNapoli, Workouts and Turnarounds II: Global Restructuring Strategies for the Next Century: Insights from the Leading Authorities in the Field (Vol. I). John Wiley and Sons.

PriceWaterhouseCoopers LLP. (2012, August 20). Restructuring and recovery. Retrieved August 20, 2012, from PWC: http://www.pwc.com/us/en/transaction-services/restructuring-recovery.jhtml#

 

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Business Failure: Business Success Can Breed Business Failure

“Corporate failure is never the results of a random set of events. It is normally a reflection of deep-seated corporate shortcomings.”

 (Chartered Institute of Management Accountants, 2012)

Business Success Can Breed Failure

We have all heard about the stories of companies that once dominated industry but later fell into business decline. There are many reasons for this. The usual suspects for business decline include becoming to dependent on existing customers, the inability to adapt business models to deal with destructive technologies, the lack of leadership, and focusing on short-term financial performance all have led to business demise. One reason not often mentioned for business decline is the hindrance of learning at both the individual and organizational levels about the true causes of business success. Success can breed failure (Edmondson, 2011). Learning enhances your capacity to face and respond to situations. However, from the business success perspective:

  • We draw wrong conclusions about the business success. We believe our success is because of the strategy, the talent, or the business model used is the cause of the success creating a false premise. Tombstone-of-Successful-Company
  • We fool ourselves developing an overconfidence bias. Although faith in ourselves strengthens our self-assurance to make a decision and execute a strategy, it can also breed closed mindedness and foster a “well if it worked before, it will work again” rational, which is not considering environmental changes and just plain luck.
  • We do not fully analyze the causes of the business success.  We will ferret the causes of a failure because we have to know why something bombed. However, we will not devote the time and resources to find out why the company was successful—again maybe because of false assumptions.

When companies catch the upward draft of success, the arrogance of the enthusiasm kicks in. Not surprisingly, the virus of success can become fatal in five or ten years (Kolind, 2006).  Think of Research In Motion (RIM) and AVON, companies in decline. The downdraft winds of business decline are a factor of the business life cycle.  The death cycle of business decline encompasses three factors: company size, company age, and company success.  One of these three factors can result in increase in:

  • The number of layers in management
  • The number of departments
  • The amount of formal procedures
  • The length in time the long-term planning process
  • The number of budget items
  • The amount of meetings
  • The quantity of reports

A problem is when the company loses its mojo. Success blinds management and causes lose touch with its customers.  Bureaucracy grows, information gets filtered and delayed, and arrogance breeds. Unfortunately, management will begin blaming others for performance slippage when the company begins to slide due to the downdraft of business failure.

Recommended actions include:

  • Question the causes of business success and failure.  Do not get stuck looking at the symptoms.
  • Do not get enamored at a cult personality be it CEO, advisor, leader or expert.  Question decisions and recommendations.  Remember, there is no such thing as a stupid question.  What is stupid is when you fail to ask the question.
  • Have strong, independent advisors and directors.
  • Complexity is the “fog of noise designed to hide reality.” Find and streamline to clarity.
  • Align pay and remunerations with risk.

References:

Chartered Institute of Management Accounting. (2012, February 15). Understanding the causes of corporate failure. Retrieved December 15, 2012, from Financial Management: http://www.fm-magazine.com/feature/depth/understanding-causes-corporate-failure

Edmondson, A. C. (2011). Strategies for learning from failure. Harvard Business Review , 89 (4), 48-55.

Kolind, L. (209). The second cycle: winning the war against bureaucracy. New York, NY: Pearson Prentice Hall.

 

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The Company is in Trouble: What do I do?

Every business entity is different. Signs of financial distress of one company may not apply to another. Notwithstanding, common problems most companies experience tend to be warning signs, signals, of pending trouble regardless of type of business, industry, size, etc.

Your company may be experiencing these types of symptoms:

  • Revenues experiencing a decline over several quarters or not meeting budgetary levels. Or your cash position is getting low as your product or service sales fallen off. You are constantly keeping an eye on the business cash cycle trying to avoid an imbalance of cash in take to cash outflows.
  • The business has lost one of more key customers and the indication of replacing the lost income is not looking promising.
  • The business is struggling to meet payroll.
  • Secured creditors are requesting for more collateral.
  • Creditors as well as suppliers have restricted lending the business as the business working capital gotten tight.
  • Key employees and managers have quit
  • The bank has threatened to call the loan.

It is normal human nature to avoid difficult problems and put off dealing with the issue. Hence, you may minimize the business problems or assume that time is on your side and it will go away. It will not!

Reality is here. As a manager or entrepreneur you must avoid being in a “state of denial”. These problems will not go away. When the business is heading downhill, you must decide whether or not you want to remain in business. This is an important issue to must not be put off.

Spend some time thinking about what you are going to do. It is critical that you think with your head and not with your emotions. Put aside your ego, sentiments, and pride. Think of what is best for you and your family. Family will be affected by your decision. Consider the following:

  • How difficult will it be to raise fresh money that you will need to turn around the business? The money to pay the bills and the money needed to execute your plan.
  • Question yourself do you have what it takes to save the business? For a small company, running it is hard enough. As the side time, the turn around process will be a monumental challenge. So do you opt for:
  1. Institute a turn around by either hiring a turn around specialist or lead the restructuring by yourself
  2. File for chapter 11 reorganization possibly losing control of the business
  3. File for chapter 7 liquidation
  4. Ramp down the business by sun setting the company in an orderly shutdown.
  5. Sell all or part of the business

Do not underestimate the time, effort, and commitment required of any choice. Not to mention the amount of money it will take to meet the challenge.

If you decide that you want to save the business, know that the potential benefits outweigh the sacrifices you and your family will have to make. So think clearly about the options.

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For free online accounting mini course “http://AccountingMiniCourse.com” designed for entrepreneurs go to http://AccountingMiniCourse.com

 

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Chapter 11 Bankruptcy: Know Fresh-Start Accounting in the Restructuring Process

Fresh-Start Accounting

Not since the Great Depression has the number of business bankruptcies been so prevalent. Bankruptcy is a dramatic experience. It is one thing reading about the recent large bankruptcies of AMR Corp., parent of American Airlines, Kodak, and MF Global Holdings. But for the business leader, understanding and planning a Chapter 11 bankruptcy to save their own company is a whole different “ball of wax.” Securing the professional advice from an accounting firm, not an individual practitioner is advisable. This is because several areas of specialization will be needed. A key question that will be asked is what the company will look like after all is said and done. After all the activities of debt restructuring and redistributing the ownership of the new company, accountants will use fresh start accounting, if it qualifies, to report the new balance sheet of the company. Because many business leaders are new to the process and never heard of fresh start accounting, and although the bankruptcy process and fresh-starting accounting are complex, a simplistic explanation of fresh-start accounting is attempted. Key expertise will be needed from the following areas that will effect the challenging bankruptcy process:

  • Bankruptcy and insolvency
  • Business valuations
  • Taxation
  • Accounting
  • Restructuring

What is Fresh Start Accounting?

Fresh-start accounting means, “the financial statements of the emerged from bankruptcy entity obtains a fresh presentation of its financial position with newly valued assets after the liabilities have been cancelled and/or adjusted.” Under certain conditions, it is recognized that the new users of the financial statements will be better served by re-valuating the balance sheet on a “fair value” basis after the confirmation of the bankruptcy. Accountants are required to follow promulgations of ASC 852 (formerly SOP 90-7) in establishing an opening balance sheet of the successor company.

Fresh start accounting benefits the new shareholders by creating a “clean” balance sheet and favoring a step up in the value of the assets. Business leaders can eliminate losses of the bankrupt company, which enables the new company to come out of bankruptcy stronger. Use of fresh-start accounting is not a standalone process. It is an integral part of the Chapter 11 reorganization procedure designed to create a solvent, operationally viable entity. Certain debts of the bankrupt company are restructured and/or discharged. Then, if the new company qualifies for fresh start accounting treatment, the balance sheet of the new company is reset.

Complexity of Fresh-Start Accounting

The American Institute of Certified Public Accountants developed strict rules for restating and a timeline for implementing fresh start accounting reporting. Determining the fair value of both tangible and intangible assets, the start date for fresh-start reporting, and the best practices in “push down” fresh start adjustments to subsidiaries and underlying ledgers must be understood. Valuation is most critical to the overall process. This can be an enormous burden on the financial, operational and systems teams as well as management. Completing this process will enable management to move forward and focus on the operations of the newly reorganized business.

Many attorneys and accountants boast having bankruptcy experience, however regarding fresh-start reporting, the requirements are beyond most of them. Practitioners and firms with experience in fresh-start accounting, along with other advisers will be needed to support the individual asset valuations to the company’s external auditors. Know that stakes are high; the situation tends to be demanding; and delays will come with penalties, which requires expertise in this area.

Criteria to Qualify for Fresh-Start Accounting

To qualified for fresh-start accounting two requirements must be met:

  1. The new company’s reorganization value must be less than the total claims and the post-bankruptcy petition liability, and
  2. The holders of the pre-bankruptcy confirmation-voting shareholders will receive less than 50 percent of the voting shares of the new emerge company.

These requirements were put into place to prevent solvent companies from filings and to prevent companies to exploiting the bankruptcy code to writing up the carrying value of the assets.

Pro Forma Fresh Start Reporting

The creation of a pro forma balance sheet using fresh start accounting includes two primary considerations:

  1. The recording of the pro forma effects as it relates to:
    1. Extinguish of debt
    2. Cancellation of the pre-bankruptcy common shares
    3. Estimation of the allowed settlement claims
    4. Issuance of the new capital (equity and debt)
    5. Adjusting the balance sheet items to the “fair value” the encompasses:
      1. Writing up and down the values of receivable, inventories, and fixed assets
      2. Adjusting and recording to the balance sheet any reorganization intangible assets
      3. Recording the present value of all surviving post-bankruptcy liabilities
      4. Adjusting any pensions and other post-retirement benefits
      5. Eliminating pre-bankruptcy retained earnings or deficits
      6. Cancellation of debt and any operating loss carry-forwards

____

For free online accounting mini course “http://AccountingMiniCourse.com” designed for entrepreneurs go to http://AccountingMiniCourse.com

____

Sample of Fresh Start Reporting

The following provides an example of Fresh-Start in practice:

Fresh-Sart Accounting Reporting
 

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Causes of Business Failure and Poor Leadership

Many papers and books have been written to study the origin of business distresses, its causes, consequences, and eventually, the best way to manage these organizations to avoid failure. The best way to learn how to manage a business turnaround is to study how mistakes were committed and what strategies were used that resulted in a turnaround success. Knowing what factors, including internal and external forces, that resulted in financial distress and crisis, as well as, how to avoid future business failures are critical.

Some companies experience traumatic pain, whereas other companies attempt to change direction to lessen the impact to land between the extremes of success and failure. Depending on the level of distress, the turnaround intervention will differ. Every company has a unique set of conditions that serves as serious problems to overcome.

Based on the pie chart[i], common reasons of business distress come from two forces, internal causes and external causes. Figure 1, shows some of the common reasons for business distress. The reasons are not ranked in accordance of severity, however to highlight some of the common threads the caused most distress situations.

During any stage of the business life cycle, potential failure is a threat that businesses normally face. A key is to recognize signs, the signals that the business may need to be restructured in order to turn around the situation.  Each situation tends to be unique, but have common elements.

Inept Leadership/Management Caused Business Failures

What is the most important responsibility of leadership? Simply put, leadership is to identify the biggest challenges to forward progress and to devise a coherent approach to overcome them.  This rule includes providing vision and motivation and to act as the change agent. Sounds nice. But in today’s competitive and volatile business climate, one cannot afford poor leadership, as business is not as usual.

Let us strip away at the excuses, explanations, rationalizations, and justifications for business failure; in the majority of cases it is because of management. In an honest analysis, it is plausible to say, “poor leadership” can lead towards corporate insolvency. Leaders will accept the kudos of business success; however most will not take the blame for business distress, which goes with the territory.

As a restructuring professional, it is plainly true that the number one cause of business failure is management. And in most cases it is because the leaders are “in a state of denial.” The common leadership reasons for business failure, and the roles and responsibilities they play are as follows:

  • Lack of Character: Without strong character attributes encompassing ethics, a leader cannot effectively lead without the trust, confidence, and loyalty required by employees. For most, title means little when the leader garners character flaws. And respect is earned. So a leader must remember, that “when the fish stinks at the head”, the fish is bad. With the crisis of confidence in Corporate America brought about by the boards of Enron, WAMU, etc., character plays a key role in the viability of a business failure.
  • Lack of Vision: The CEO must clearly define and communicate the corporate vision. Without vision, a flawed vision, or a poorly communicated vision, executive leadership has a problem. Moreover, if the vision is not in alignment with the corporate strategies and targets, the business will shortly be in trouble.
  • Poor Branding Poor branding generally means poor leadership. Brand equity, if declining, must be blamed on the leadership.  You must question whether the leadership abdicated their responsibility while an erosion of brand equity is taking place. It is a failure in the alignment of vision with strategy for allowing the deteriorating of a brand’s promise.
  • Lack of Execution: It all comes down to execution; the implementation to ensure a certainty of execution is primary for executive leadership. Leadership must focus on deploying the necessary resources to ensure that the largest risks are adequately managed, and/or that the biggest opportunities are exploited to avoid failure.
  • Flawed Strategy: A flawed strategy simply reveals weak leadership. While there are exceptions to every rule, companies tend to succeed by design and fail by default. Show me a company with a flawed strategy and I’ll show you an incompetent leader.
  • Lack of Capital: Even well capitalized ventures fail and severely under-capitalized ventures grow into dominant brands. A lack of capital can provide a socially acceptable excuse for business failure, but it is not the reason businesses fail. Cumulating working capital and permanent working capital is ultimately the responsibility of leadership. The amount of capital required to fuel a business is based upon how the business is operated. The reality of capital constraints is a factor leadership must recognize. If leadership squanders the opportunity to obtain sufficient capital, irrespective to capital formation, the business will feel the results.
  • Poor Management: The choice of recruiting, mentoring, deploying, and retaining management talent is up to leadership. Thus it is leaders blame if is fails to act to correct mistakes, change direction, or effective execute of strategy.  It is the job of leadership to recruit, mentor, deploy, and retain management talent.
  • Lack of Sales: The lack of coherent strategy, pricing, positioning, branding, distribution, or compensation impacts revenue. A lack of sales is ultimately attributable to a lack of leadership.
  • Toxic Culture: Culture is important in business, whether it is a culture of working at Google, IBM, or at the Red Cross. It is up to leadership to recognize and “cut out” the individual or individuals that poisons a culture of a business. Nothing stifles productivity and creates conflict like a toxic culture. Hiring management or employees with different cultures must be examined to determine if issues will be developed.
  • No InnovationRemember, even Kodak was innovative, but have faltered from global competition. Leaders must create a culture of innovation or they will fall on the innovation sword. Innovation must be mission critical. As an example, textile maker, Milliken & Co., leveraged innovation to effectively compete. The strong bias for innovation by great leaders constantly recreates businesses and generates new opportunities. Leaders that are slow moving towards innovation will doomed the business.
  • Not Tackling the Market: Good leadership tracks sound market opportunities, however pursuing the wrong market, or even following the right market improperly will lead to disaster.  But also sizing a business too fast, too slow, or yet at worst not designing a scalable business correctly lacks leadership.
  • Poor Professional Advice: All entrepreneurs and CEOs require quality professional advice. “No man is an Island,” so there is no excuse to having a “blind spot” to support limitations or added recommendations to strengthen ones’ knowledge or wisdom in making informed decisions.  It is pure arrogances not to recognize the need for advice that has led many companies down the wrong path.
  • Failure to Attract and Retain Talent: Surrounding ones self with great talent attracts more talent. It is the leaderships’ blame if the company does not have good talent. This requires recognizing talent when you see it. Then it is equally important to retain it, as other opportunities may steer talent away. If that takes place, leadership is the blame.
  • Competitive Awareness: It is critical to understand the competitive landscape to navigate the enterprise successfully. Not understanding, acutely, what the competitors are doing can disable any competitive advantage the company may have, that can play an important role in business decline.

Consequently, the characteristics of the leader and that of his/her key management play an important role in the decline of the business. Be it pure incompetency and/or the lack of interest in the business can lead to distress. Five principal factor for business distress include:

  1. Autocratic rule: Many companies that went into distressed had dominant and autocratic leaders that made all major decisions in the company and did not tolerate dissent. Although this is not to say that autocratic leadership is bad, a fine line exist between leaders that bring success and leaders that lead to distress.
  2. Ineffective board: Be it board of directors or board of advisors, weak board members that lack true business acumen, ethics, and ability to stand up to management can lead to trouble. Actively engaging in the planning, resource allocation, policy-making, and approval process oversight of the company is the responsibility of the board. But unfortunately, many boards are made of the “buddies” of the CEO, “rubber stamps” management’s assertions, maintain passive oversight, and/or just sit on the board for the status and the perquisites that goes with the position.
  3. Poor management: For some companies, management act as mere administrators, maintaining the status quo, avoiding the ever-changing business environment. Most do not realize that management is about change, change to survive in the current business environment. Such inability to accept even the proposition of change has led to even great old brands being swept aside towards the rubbish bins of lost value followed shortly by the company.
  4. Lack of Management Depth: Many companies’ management lack adequate skills. The lack of management depth tends to be found in companies that have been slowing declining.
  5. Neglect of Core Business:  As companies evolve they diversify in to other areas. Such diversification can lead to business distressed. This is what happened when Gil Amelio, then CEO Apple Computer struggled in an attempt to compete with IBM in the mid 1990s. Apple operated four business units, Macintosh, Information Applications and Peripherals, and “Alternative Platforms.” With six types of Mac computers, the company was bleeding cash. Upon the return of Steve Jobs, he radically simplified the company to its core business slashing all business units to the Macintosh and selling only one type Macintosh computer[ii]. Diversification means stretched resources and focus that can lead neglect of the core business.

Also know that hubris on the part of certain leaders have led companies down the wrong path to insolvency. Pursuing inappropriate, or high-risk strategies based on false premises, have brought down some of the most highly thought of companies.

  • Take the case of American International Group (AIG) that underwrote (what was considered very profitable) credit default swaps through its London based Financial Products Group. With the 2008 financial meltdown, the U.S. government was forced to bail out the company in order to protect the U.S. financial system.
  • Look at MF Global Holdings, then ran by former head of Goldman Sachs and former N.J. governor, John Corzine. In his veal for higher earnings to offset declining core revenue, and despite warnings from two chief risk officers, embraced Greek sovereign debt despite cautionary signs of the risk of default. Because the firm was unable to meet cash collateral calls made by counterparties, MF global was forced into bankruptcy     

[i] Richard P. Remelt, “Good Strategy Bad Strategy” Crown Business 2011.



[ii] James E. Schrager, Ed. “Turnaround Management: A Guide to Common Restructuring.” Institutional Investor 2002.

 

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10 Key Reasons Leadership Causes Business Failure

What is the most important responsibility of leadership? Simply put, leadership is to identify the biggest challenges to forward progress and to devise a coherent approach to overcome them. This rule includes providing vision and motivation and to act as the change agent. Sounds nice. But in today’s competitive and volatile business climate, one cannot afford poor leadership, as business is not as usual.

Let us strip away at the excuses, explanations, rationalizations, and justifications for business failure; in the majority of cases it is because of management. In an honest analysis, it is plausible to say, “poor leadership” can lead towards corporate insolvency. Leaders will accept the kudos of business success; however most will not take the blame for business distress, which goes with the territory.

I recently read an article by business adviser Mike Wyatt about common leadership reasons for business failure. As a restructuring professional, it is plainly true that the number one cause of business failure is management. And in most cases it is because the leaders are “in a state of denial.” The common leadership reasons for business failure, and the roles and responsibilities they play are as follows:

  1. Lack of CharacterWithout strong character attributes encompassing ethics, a leader cannot effectively lead without the trust, confidence, and loyalty required by employees. For most, title means little when the leader garners character flaws. And respect is earned. So a leader must remember, that “when the fish stinks at the head”, the fish is bad. With the crisis of confidence in Corporate America brought about by the boards of Enron, WAMU, etc., character plays a key role in the viability of a business failure.
  2. Lack of Vision: The CEO must clearly define and communicate the corporate vision. Without vision, a flawed vision, or a poorly communicated vision, executive leadership has a problem. Moreover, if the vision is not in alignment with the corporate strategies and targets, the business will shortly be in trouble.
  3. Poor Branding:  Poor branding generally means poor leadership. Brand equity, if declining, must be blamed on the leadership.  You must question whether the leadership abdicated their responsibility while an erosion of brand equity is taking place. It is a failure in the alignment of vision with strategy for allowing the deteriorating of a brand’s promise.
  4. Lack of Execution: It all comes down to execution; the implementation to ensure a certainty of execution is primary for executive leadership. Leadership must focus on deploying the necessary resources to ensure that the largest risks are adequately managed, and/or that the biggest opportunities are exploited to avoid failure.
  5. Flawed Strategy: A flawed strategy simply reveals weak leadership. While there are exceptions to every rule, companies tend to succeed by design and fail by default. Show me a company with a flawed strategy and I’ll show you an incompetent leader.
  6. Lack of Capital: Even well capitalized ventures fail and severely under-capitalized ventures grow into dominant brands. A lack of capital can provide a socially acceptable excuse for business failure, but it is not the reason businesses fail. Cumulating working capital and permanent working capital is ultimately the responsibility of leadership. The amount of capital required to fuel a business is based upon how the business is operated. The reality of capital constraints is a factor leadership must recognize. If leadership squander the opportunity to obtain sufficient capital, irrespective to capital formation, the business will feel the results.
  7. Poor Management: The choice of recruiting, mentoring, deploying, and retaining management talent is up to leadership. Thus it is leaders blame if is fails to act to correct mistakes, change direction, or effective execute of strategy.  It is the job of leadership to recruit, mentor, deploy, and retain management talent.
  8. Lack of Sales: The lack of coherent strategy, pricing, positioning, branding, distribution, or compensation impacts revenue. A lack of sales is ultimately attributable to a lack of leadership.
  9. Toxic Culture: Culture is important in business, whether it is a culture of working at Google, IBM, or at the Red Cross. It is up to leadership to recognize and “cut out” the individual or individuals that poisons a culture of a business. Nothing stifles productivity and creates conflict like a toxic culture. Hiring management or employees with different cultures must be examined to determine if issues will be developed.
  10. No Innovation: Remember, even Kodak was innovative, but have faltered from global competition. Leaders must create a culture of innovation or they will fall on the innovation sword. Innovation must be mission critical. As an example, textile maker, Milliken & Co., leveraged innovation to effectively compete. The strong bias for innovation by great leaders constantly recreates businesses and generates new opportunities. Leaders that are slow-moving towards innovation will doomed the business.

For leaders, the bottom line is that—businesses do not fail, the CEO, the entrepreneur, the leader does. A self-realization in the leadership sphere would result in an understanding that the responsibilities in operating at the C-suite level requires match the talent with the duties that goes with the territory. Is this easy? No! If so everyone would be a CEO or entrepreneur.

 

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