Emerge Dynamics is all about how businesses can emerge from their peers, and businesses accomplish that when they are well-run. This is especially true during a downturn, so today we’re focusing on how you can guide your business through these challenging times.
There are so many bankruptcies happening in 2023. Why is that? It can be easy to throw the blame to the economy or the government, but the reality is that businesses is trouble now were unhealthy even when the economy was strong. There are some estimations that external factors only account for 21% of business failures.
In addition to the Z-score, which measures a company’s likelihood of going bankrupt, Edward Altman also created an empirical measure for how many businesses will fail in the economy as a whole. One of the variables in the equation is the money supply, which has increased greatly in the past few years. At some point in time, that’s going to stop. This equation may begin show even greater correlation during this downturn.
Despite everything going on in the economy, the main cause for decline is still bad management. When interest rates are so low, businesses may have chosen to borrow cheap money just because they could. If they had put some more thought into it, they could avoid the situation they’re in now that arose from over-leveraging.
Another factor causing businesses to have issues is having an “authoritarian leader.” There needs to be a balance between being a strong leader and taking input from others. If a business is declining and has this type of leader, it’s probably their fault.
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