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How To Know When It’s Time To Call It Quits On A Failing Business

Entrepreneurs are usually encouraged to stick it out – yet there are times when the best option is to fold

In an economy that is becoming increasingly accustomed to strained trading conditions, many business owners are entering into cash flow struggles and grappling with the question of how to save a troubled company, or whether this is even a possibility.

Several state-owned enterprises have over the years received hefty bailouts from government, and some parallels can be drawn between the public and private sectors.

David Morobe, regional general manager at Business Partners, says when considering whether a company is destined for ruin or survival, it all comes down to the turnaround strategy and how it is executed.

“Whether it is a SOE, large corporation, or smaller owner-managed business, the basic principles of business turnaround remain, and that is whether a business can survive, and then thrive, long after the financial bailout period. By addressing key fundamentals, an educated decision can be made whether to close up shop or seek business rescue and implement a turnaround strategy,” he says.

“The key to a successful turnaround strategy includes reviewing and critically assessing the business model; addressing management challenges to ensure that operational guidelines are being adhered to; and reassessing the market, product and competition. If these challenges have been ironed out, then the bailout may yield the desired results.”

Using Telkom as an example he says: “Telkom wasn’t always as successful as it is today, but with its new management team, the business reassessed its product offering and made the decision to move from fixed line products to Wi-Fi, data and fibre connectivity. Today, Telkom is one of the biggest competitive players in the market.”

Morobe says it’s also important to home in on what your competitors are doing.

“As most businesses face competition, the business model and the quality of the service or product offering needs to be strong enough to withstand similar players operating in the same space.

“Illustrating this is the previously struggling airline Air Mauritius, which managed to turn around its $30 million loss and poor customer service ratings, [and become] a four-star airline, garnering a profit of $8 million in just two years,” he says.

“Only once the core of the problem has been identified can solutions be found to bolster business performance. After ironing out these aspects and challenges, a bailout and turnaround strategy can be considered if the research deems it viable. Ultimately, enough will be enough when it becomes more economical to start a new business than trying to salvage or turn a business around.”


Written by How South Africa

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