Business – Fighting failure

Information released in the BWA Insolvency quarterly report recently makes for concerning reading: company failures (liquidations, receiverships and voluntary administrations) in NZ increased by 69 percent between the second quarter of 2022 and the second quarter of 2023. When looking at the total number of start-ups or new companies formed since 2020, 40 percent had failed by the first quarter of 2023.

We can see this from our experiences locally – the number of cafés that have changed hands, and “for lease” signs both in town and in business or industrial areas. I don’t want to focus on the negatives here, I want to talk more about why. And what you can do to improve your chances of survival in a very difficult business environment that continues to be affected by lack of demand, interest rates, cost of living, supply and staff shortages – indeed just about everything that is outside your influence as a business owner.

We don’t need to be rocket scientists to know why businesses fail. Invariably failure happens because the business in no longer liquid – it has no cash to buy the stuff that it needs to sell, or provide the services that its customers want. There are a myriad of reasons for this. Since 2020 many businesses have been hanging on by a thread, just getting through Covid-19, but the headwinds of inflation, for some, were the final blow. 

Often, in times such as these, some of those are beyond the control of the business owner and even the most prudent management does not ensure that they are better positioned for what is to come. 

Also, in some instances businesses fail because of mismanagement.  

What is mismanagement, or more to the point, what is good management? Good management is about planning and foresight. It is about building adaptability that will enable a business to change quickly and in the right direction.  

Darwin is often misrepresented in his theory of evolution whereby the common belief is “survival of the fittest.” He never said that! What he did say, was that those species that have the ability to adapt to changes in their environment will survive. It’s the same in business! To adapt we need to be lean, quick and on our toes. We need to have shed the fat, cut our suit to fit the market conditions, and do it early.  

Good management is also about discipline and grit. When market conditions are tough, when demand for our products or services are decreasing, when interest rates are increasing, when our suppliers are putting up prices, we have to make the tough decisions. It may mean job cuts. It will mean a close investigation of every one of our fixed costs. But if we do it early enough, with discipline and grit, we will live to fight another day. Because this business environment will bounce back. It always does. Those that survive will then reap the rewards.