Every entrepreneur dives into business because they want to achieve financial stability and freedom from the regular nine to five work hours. New business owners take pride in the company they’re creating and want to invest for the long haul fully. Unfortunately, many of these budding businesses fail due to unpreparedness, ineffective leadership, lack of market research, reliance on one group of customers, and an ineffective business system.
The Bureau of Labor Statistics, a fact-finding agency of the U.S. government, found that 155,000 businesses fail within their first two years. This incident usually happens when small business owners don’t truly understand the value of their investments and the risk factors the changing market needs may include. However, businesses can take any significant hit with business insurance and with enough awareness and education.
Without business insurance, your business will have to be liable for expensive damages and legal claims against your organization. Although the law doesn’t require business insurance, it can help you in catastrophic natural disasters or lawsuits. This article includes several strategies to prevent financial burden and protect your brand reputation.
1. Cut Unnecessary Costs
One of the excellent ways to ensure business longevity is eliminating unnecessary expenses. Cost-cutting strategies are executed during periods of an organization’s financial distress or during a catastrophic slump. This strategy includes the following:
- Reducing Labor Expenses
Labor costs have a significant impact on the total business cost. While huge businesses can already employ more than 500 employees, no small business can withstand their business procedures by turning a blind eye to labor costs.
However, you still have to think about the costs of possible employee turnover in the future. For example, once product or service orders rapidly increase within a short span, you might not have enough employees to do the work. Thus, you need to employ reasonable labor expense control to improve overall business productivity and increase market share.
- Decreasing Inventory Costs
Supply Management is the process of keeping enough supplies to reach customer demands while matching remaining business expenses. Controlling inventory costs should be on top of your organizational list with the ever-changing customer demands. This strategy distributes assets with priority expenses and decreases lost profit.
For example, if you have a vast business goal, you would never invest your money into one source. Instead, you should efficiently distribute your assets to succeed faster. The same idea applies to supply reduction. If you want to improve your market share, you shouldn’t put most of your cash flow into supplies.
The advantages of decreased inventory include supply maintenance reduction, improved flexibility, and effective demand forecasting reduced unused merchandise. On the other hand, if you still don’t feel the importance of reducing inventory, your business may suffer from the effects of holding too many supplies, which include:
- Reducing current cash flow
- Building additional storage problems
- Neglecting to refill with more in-demand supplies
- Increasing inability to adapt to client demands
2. Be Transparent with Your Suppliers and Lenders
Supply chain transparency is a process that involves the upper management communicating the exact details to the suppliers, distributors, and lenders of the delivery stages. This process includes product safety standards, material sourcing, employment practices, and environmental sustainability. Supply chain transparency helps manufacturers build trust between suppliers, distributors, and end-users.
To avoid future bankruptcy, businesses must avoid inauthentic supply transparency because sharing fake supply information puts the supply chain into further economic strains. Original supply chain transparency allows suppliers and lenders to get the correct product data to safeguard your company from high financial costs. Therefore, you must be an honest business partner to maintain your brand reputation and attract additional customers.
3. Do Market Research
As technology advances, market preferences also change. Market research is vital in avoiding possible business bankruptcy because of its benefits, which include:
- Getting a further understanding of your industry to modify product features.
- Identifying your target market to ensure efficient advertising strategies.
- Creating productive marketing strategies.
- Staying ahead of market share competition by identifying competitors’ strengths and weaknesses.
- Reducing investment risks.
- Recognizing possible threats and opportunities.
- Observing the industry trends to create relevant and fresh sensations.
- Providing market share projections.
- Ensuring customer loyalty by focusing on customer demands.
It’s possible to avoid bankruptcy by cutting unnecessary expenses, communicating authentic information to your business partners, ensuring workplace productivity, and conducting market research. While it’s taxing to stay on top of the competition, it’s better to report business solvency instead of filing for permanent bankruptcy.