Losses to avoid in business

Business losses may result from failing to meet predetermined goals and objectives. Even business failure or bankruptcy could result from it.

One of a business’s concepts is a “going concern”. That is the ability of the firm to operate to the unforeseen future. Therefore, all companies, whether they are limited liability or sole proprietorships, should work to prevent losses that could result in business failure.

Here we shall explain in detail the various losses that firms must avoid in other to attain their set goals and objectives. Most of these human and vital resources that are acquired over time by a thriving business could be lost in a very short time. Some of these losses are;

1. Loss of goodwill and reputation:

   Goodwill is internally generating intangible assets. It is built over time. The image of the firm is very vital. Goodwill is a firm major asset and should be guided jealously.

2. Financial loss;

   Financial objectives are a major objective that firms pursue. The source of capital, liquidity, and profitability of firms should be always considered.

   • Loss of lenders:

     A crucial component of a company is financing. Lenders provide money to businesses in exchange for interest at a specified time. Businesses should make sure to follow the terms of the borrowing plan since doing so will increase their creditworthiness and increase the amount of money that other lenders are ready to loan them.

   • Liquidity:

     This is the ability to meet up short-term financial obligations urgently as the needs arise. This can be evaluated using some ratios such as; Current ratio, quick acid ratios, average collection period, etc.

   • Profitability:

     Evaluation of control and performance is crucial. Also, this is used to measure profit and the resources used to produce it. The use of return on capital employed, return on investment, and return on investment are used to evaluate firms’ profitability.

3. Loss of External Human resources:

   A bird in hand is far better than a thousand more out there. A business’ worst nightmare is losing a client. They ought to work hard to win new clients while keeping the ones they already have. Knowing the demands of the customer and fulfilling them can help you achieve this.

   • Loss of Customers:

     Customers need exceptional services, listening to their needs and resolving them, and going the extra mile to meet and surpass customers’ expectations. Show them love and create good feedback channels where customers can comment and criticize the products and your services. Customers need good and affordable quality products.

   • Loss of turnover:   

     Loss of customers reduces the firm’s sales and profitability.

   • Loss of major suppliers:

     Over-reliance on one supplier for a large percentage of raw materials should be avoided. Suppliers need prompt payment as agreed initially.

4. Loss of Internal Human Resources

   • Loss of skilled workforce/ employees:

     In a competitive environment, firms may lose their major workforce to competitors. This may result in to increase in overtime expenses. Firms should invest in training unskilled staff to equip them with the required skills to function actively. Workers need a conducive work environment, job satisfaction, and job security.

Employees require benefits that are appropriate to their work function, timely salary payments, and promotions when they are due. These will significantly boost motivation, teamwork, and passion to do their work effectively and efficiently.

Loss of major marketing and distribution network:   

The final step in the production process is marketing and distribution. New customers discover the products and services from advertisements. Thus, advertising is crucial to the company’s ability to survive. The purpose is defeated if an excellent product does not get to the consumers. It is advised for businesses to hire efficient marketers to promote and distribute their products to customers.

• Loss of shareholders and Loss of market share:

  Businesses must constantly expand their market share. No shareholder would want to invest in a company whose management lacked the skills necessary for success and growth over the long term. Businesses should avoid making poor decisions that could hurt the firm and instead employ sound tactics to make investments successful and create shareholder wealth. Investments must be assessed before adoption.

This is to avoid involving in unprofitable investment. Consider the fact that one of the company’s main goals is to maximize the wealth of its shareholders. A positive net profit value creates wealth for shareholders. Earnings per share, Dividend yield ratio, and earnings yield are used to evaluate shareholders’ wealth.

An increase in stakeholders’ wealth may also mean optimizing the total return to ordinary shareholders, dividends, and capital growth.

• Loss of firm key management:

  The key management of a business is concerned with the administrative part of the business. They include both executive and non-executive management. They make informed decisions to achieve their goals and objectives by utilizing all the resources to manage the business effectively. Sometimes managers may be rewarded with shares of the firm. This is an additional advantage as they can be both shareholders also and are called share options.

Also, Read  https://fabjobsetters.com/critical-success-factors-and-key-performance-indicators/

Summary:

Financial loss which is the major loss in business has been thought to be the only loss. The losses discussed in this article consequently to financial loss. Knowing what kind of loss was incurred during each period of downtime can help in fixing the issue.