Top 5 Reasons Why Companies Go Down

By Flávio Ítavo, executive specialist in company recovery

 
It is possible to point out some basic reasons why companies fail. It all starts with the difficulty of planning and controlling cash flow, but it doesn't stop there, it takes maturity to establish and maintain limits. A good portion of entrepreneurs do some type of planning, generally related to the results expected from this venture, but do not project cash flow, making it difficult to predict how much investment will be needed for working capital. And the difficulties do not end there. Therefore, we have listed the top 5 reasons why companies break down:
 
1. Difficulty in planning and controlling cash flow: the big problem is that sales are made today, and receipts, for the most part, are made later. The more you sell, the more you give credit and, in the meantime, you may default and find it difficult to rebalance: banks are reluctant to lend money to those who have working capital problems. They usually like to lend to people who don't need money, but they don't like to lend to people who are in difficulties.
 
2. Not knowing your costs: companies often answer the question "what is your cost per product?" with a response like "on average 50% the sale value". This means that the customer does not know how much each product he sells costs, which is unacceptable in times when simple systems perform this calculation quickly and reasonably well.
 
3. Ignoring the limits of your capital structure: more than half of the companies I work with face problems with aggressive growth. It is that giant sale, offered by the wholesaler chain, to be closed tomorrow, that usually generates the most serious problems. Growing up requires working capital, investing as well and undoing bad investments made by burning capital. Everything is tied to how much capital you have access to. Not necessarily yours, but also one that can be borrowed.
 
4. Do not protect billing: the term "protect" in this case is used for volume and price. Companies bet heavily on discounts and sales to increase sales and forget how much they affect the perception of the product's value, which may take years to be sold on the same scale at the conventional price. The commercial is the heart of the company and most end up dying for lack of adequate commercial positioning.
 
5. Not following, or not having, your strategic planning: if you have determined a certain strategy for your business, you have tested the said whose, put together a strategic plan that makes sense, follow it. Do not try at the first difficulty to change the plan. This business of changing direction as the wind changes is good for racing sailboats. In everything else it does not make so much sense. It is obvious that you do not need to cement your feet on the pillar of the Rio Niterói bridge, but try to keep the right course.
 
* Flávio Ítavo, executive with experience in large companies in different segments. He specialized in the recovery of companies and redirection to leverage sales and results.