Business Crises

An Overview

Ladder of Business crises

It is not one time attack If overlooked, they almost determine the coming decline of business.

What are the seven crises

Starting crisis Cash crisis (First 3 years) Delegation crisis Leadership crisis (3 to 7 years) Prosperity crisis (7 to 10 years) Finance crisis Management succession crisis (ten onwards)

Starting crisis
It is the root cause of failure of a high no. of business ventures. The reasons are:
Lack of thorough knowledge of market potential Lack of all round managerial ability Poor book keeping Underestimation of capital required Ignorance about tax liability

Remedies
Choose most familiar project line Use as much advice and information as possible Listen to all available advice Organise up to date business data Make realistic plans, not overambitious Meet your tax consultants/officers often Realistic estimation of capital required Careful selection of machinery Be conservative about income (low and late) Liberal about expenses (high and early) Never start a project without assuring sufficient funds

Cash crisis
Excessive attention to profits & sales growth rather than cash-in-hand Excessive investment in fixed assets Unplanned expansion

Remedies
Trade off between liquidity and profitability Constantly watch for ways of economizing on cash Proper monitoring of current assets Constantly assess cash position & prepare cash flow statement every three months in advance. Consult good accountant Monitor the stock of raw material,semi finished goods, finished goods and outstanding recoveries

Delegation crisis
Inability to delegate responsibilities and share the decision making burden Psychological problems(lack of faith in others) Responsibility grows with business but time does not

Remedies
Seek out a capable second person to supplement you Test him/her & start sharing responsibilities Employees participation in management to boost up the morale Identify own weaknesses and select the second person who is strong in your weak areas Be prepared for good salaries, appropriate status, authority and share of profits to retain key person

Leadership crisis
Lack of team of managers Single owner or partner unable to manage responsibilities of a large firm Sticking to the old management system/style of an effective leaders Tight control

Remedies
Develop a team of executives and give them sufficient authorities Concentrate on business strategies, future plans, competition and govt. policies etc. Act like a leader than a manager/ supervisor Constantly evaluate how you spend your time The entrepreneur must train himself in new management skills & styles for achieving & sustaining growth

Financial crisis
Lack of judicious capital mix Excessive dependence on borrowed funds Failure to go public Over ambitious and unrealistic expansion plan Psychological problem of loosing control (100 % ownership of declining unit Vs 80 % of a large successful firm)

Remedies
Good team work , sufficient delegation and constant monitoring Consult experts and bankers for judicious capital mix Dont be afraid to go to public Remember: 80 % ownership of a growing firm is better than 100% ownership of stagnant/ declining one

Prosperity crisis
Complacency No adaptability and environment awareness
(competition, technological changes, raw material substitute, new products, consumer tastes)

Loss of market share and declining profits Overconfidence

Remedies
Always keep your eyes & ears open Always remain firmly aggressive and not passive Do not be overconfident Success today is no guarantee of success tomorrow

Management Succession crisis

Long illness, accident,unexpected death or incapability of the entrepreneur No one groomed to takeover Absence of second key person Death/ estate duty obligation Lack of planning

Remedies
Groom successor Develop a team of experts A team is better than a
single prince

Prepare a will Brief your family about business Constantly interact with bankers & investors Have one person with general management skills and few others for special skills of the entrepreneur Invite competent persons on the Board of Directors