Causes of Failure in Corporate Businesses
Moyi Harry Ruben
My recent research in the role of corporate finance in defining liquidity in commercial Banks in South Sudan came to the unstartled conclusion that about 93 percent of the cases of business failures stemmed from managerial in-experience and incompetence, the rest being; Neglect 2 percent Fraud 2 percent Disaster 1 percent and unknown 2 percent. The evidence for inexperience and incompetence results were as follows:
In adequate operational planning (sales) 44 percent
Competitive Weakness (Market Share) 24 percent
Heavy Operational Expenses 9 percent
Inadequate internal Control 8 percent
Asset Misappropriation (Misuse) 4 percent
Inadequate liquidity Control (Short in Till) 4 percent
Poor geographical Branch Location 5 percent
Others, 2 percent
Lying behind these causes is the failure to plan and failure to control the consequences of bad plans. Environmental factors maybe significant but only to the extent that they are beyond the ability on a competent manager, to predict and control. I also identified five other characteristics of bad management these include but not limited to:
One-man Rule (not by any means necessarily a one- business).
An unbalanced team of managers (in the functional personality senses)
A non-active Board of Directors (Non-participating).
A company in which the chairman and a chief executive is the same person (I am in control ye not)
A weak financial functions (Traditional Accountants).
From such scenario of bad management characteristics flows certain consequences which may lead to total collapsing of the establishment. If the management of the company is poor, then two things will be neglected.
The system of accountancy will be deficient.
The company will not respond to any change.
Some corporate business, even well managed, may be damaged because powerful constraints may prevent the managers making the responses they wish to make. Poor manager will also make at least one of the three mistakes:
They will overtrade.
They will launch a big project that goes wrong after sometime.
They will allow the business to gearing to rise, that even normal business hazards become constant threats to the company.
These are the most common causes of failure of business firms, neither fraud nor bad luck deserve more than a passing mentioned above, therefore the following symptoms of the problems will appear:
Certain financial ratios will deteriorate hence adjustment of Financial ratios to justify profit making.
The managers will start creating accounting that will reduce the predictive values of the returns
Try to concentrate on non-financial symptom to justify success.
Finally, these characteristics were test and proved that they form part of the problems of failure in returns on investment, further research need to be carried to arrive at the best solution.