How to Overcome Business Loss

Around 90% of Indian startups fail within the first 5 years of operation, according to a study by IBM. Let’s understand more on different causes for business loss and what measures can be taken to support the business in crisis situations.

What is Loss in Business?

Typically, business loss implies lack of equilibrium between the money generated by the business and the expenses used in business operations and continuity. This lack of equilibrium reflects no profit and a net deficit with respect to the company finances. The financial losses can be attributed to a number of causes – interruption of trade by a third party, any disputes culminating into court cases, reputational damage, consumer diversion and diminishing interest in the product/service utility.

Common Causes of Business Loss

The negative impact on the bottom-line leads to financial losses which can significantly impact the growth trajectory of the business. There can be several causes leading to business loss which could vary in different businesses based on the nature of the business, market size and competitiveness, interest of clients/consumers and other industry factors. Let’s understand the common causes of business loss elicited as follows:

Financial drawbacks:

Lack of cashflow is one of the primary reasons for business loss. When the business owners consciously identify the total runway required for operations but have difficulty attaining the required sales targets to keep the company afloat. Lack of proper pricing and seasonal fluctuations further decline the sales count. This is a common phenomenon in new companies and startups.

Rapid scaling and expansion:

Startups, which are generally dynamic and fast-moving, sometimes expand too swiftly. This can be decoded here. When the company starts getting increasing orders, normal operations are interrupted with functional errors. Alongside, the company is struggling with quality customer service as the quantity of staff is not adequate thereby impacting the demand and affecting the cashflow.

Lack of business planning:

One of the primary reasons that can make or break the business is planning. When business goals are structured, there is transparency on the threats, market initiatives, opportunities, and funds requirements. Planning ensures the company finances are reviewed and business operations align with defined targets. However, when businesses lack a structured plan, they misalign finances and fail to leverage growth opportunities, causing severe losses.

Management problems:

One of the major reasons for business loss is management issues. Sometimes, the business owners can act as ‘Jack of all trades’ and try their hands at different roles from hiring to marketing leading to mismanagement at all levels. When the business owners don’t consider outsourcing for different management roles, it can cause speculation, financial as well as other business losses.

Faulty records:

Maintaining records is essential not just adequate documentation but also serves as a foundation for determining the consequences of action. For instance, maintaining accounts gives clarity about operational expenses and fixes the budget if it exceeds the required cash flow. Without proper documentation, crucial information and records can miss out, causing operational interruptions, leading to significant losses.

Immediate Impact of Business Loss

Business loss just does not impact the company finances, but also influences the company operations and the psychological impact on different members of the company. Let’s review the immediate impact of business losses:

• Loss in revenue due to decline in sales and income as a result of supply chain disruptions, economic fall down, and natural calamities.
• Rise in operational expenses due to more labour overtime, higher shipping frequency, regulatory charges and any penalty charges related to the contract.
• Supply chain interventions: Business loss can intervene the supply chain influencing the regular delivery timeline of customers and suppliers decreasing the operational efficiency of the business.
• Employee layoffs: To make a balance with the remaining runway after business loss, the company takes the call of employee layoffs, which can further bring a wave of fear and more unproductivity among the employees.
• Business loss can also lead to psychological distress to the owners as well as employees. Research concludes such losses in business significantly impacts mental health and decrease in life satisfaction. Further, the stigma clinging to business loss can delay recovery speed from depression and anxiety.

How to Overcome Business Loss

Business loss can have a significant impact on the operations, employees as well as in the lives of the business owners. It is important to take steps to overcome business loss which can be discussed here as follows.

Prepare a budget:

Businesses need to have a well-structured budget planned considering the company’s core operations and different sources of income and expenditure, and review it recurrently.

Outsourcing tasks:

Business owners need to outsource tasks by hiring specific talent that can cater to the domains they have less knowledge and implementation experience. Outsourcing tasks can prevent any severe mistakes related to subject matter.

Insurance for business loss:

Insurance for business loss acts as a shield to protect the company from any unprecedented emergencies and helps mitigate potential risk and any damages caused due to natural calamities.

Restructure business:

It is important to review the budget and cashflow and restructure business by shuffling tasks with employees, layoffs and streamline the company finances according to the impact of business loss without impacting core operational activities.

Focus on customer retention and renewal:

Review the current operations and past records and devise different strategies for customer retention and regaining new clients to prevent any further business losses.

Insurance for Business Loss

Insurance for business loss acts as a shield to protect the company from any financial losses resulting from third party damage, natural calamities or any unexpected emergencies. It is important for companies to buy an insurance policy that is tailored according to the business requirements, industry type, risk potential and curated considering the cost-benefit analysis of the premium price to coverage limit contrasting the risk factors and potential damage. Business can choose to insure from natural calamities like hurricanes, storms, tempest, floods, inundation, etc., emergencies like fire, theft, vandalism, burglary, etc., property structure and belongings, intellectual property¸ protection against cybercrime, any litigation by consumer against the product quality or service and several other parameters.

Types of Business Loss Insurance

Selecting the right insurance for business prevention can be a proactive measure by companies to shield any financial losses due to natural calamities, man-made accidents or unprecedented emergencies. Here are different insurance types which could help businesses navigate the losses with ease of claims settlement.

• Commercial property insurance can provide protection to the property structure and contents from any unexpected event like theft, fire, vandalism, assault or any crime which interferes with business operations and continuity.
• Cyber liability insurance helps businesses with security in the event of any losses arising due to cyberattacks and data breaches.
• Errors and Omissions (E&O), also known as Professional Liability insurance to shield companies from any claims arising due to negligence in service, errors or omissions.
• General liability insurance offers coverage for any legal claims arising due to bodily injury or property damage to third-party caused by business operations.
• Product liability insurance is crucial for businesses in the event of any defects arising in the products throughout the supply chain process, from manufacturing to selling.
• Directors and Officers (D & O) insurance to shield the personal assets of the directors and officers in the company to fight any claims issued against them.
• Business Interruption insurance provides coverage to recover loss of income caused by operational problems invoked by natural calamities, damage or any unprecedented events.

How Insurance Helps in Recovering from Business Loss

Insurance for business loss can help prepare the business from any unforeseen circumstances. It provides the required financial protection against business loss when processing a claim accurately with the insurance company through a complete process from filling proper documents, submitting evidence through photographs, videos or records, and policy details as requested by the surveyor. When the claims are processed, the amount helps with business continuity or repair and recovery costs till the business operations resume normally just as it was before the accident.

How to Safeguard Your Business from Future Losses

Business loss can have a devastating impact on the company financials and influence the company operations. While taking steps to overcome the business loss is important, safeguarding business from future losses is also vital. Businesses should plan a budget considering the company operations and sales targets and hire resourceful staff who can meet the dynamic business requirements. Furthermore, insurance for business loss is another crucial step to protect the businesses from any unexpected events like natural calamities, property damage, or any unprecedented crisis situation. Covrzy can help safeguard your company from future losses by simplifying business insurance and offering a personalized quote aligning with the specific requirements of your business.

Conclusion

Companies can endure business loss due to a number of reasons like cash flow imbalance, lack of proper planning, management issues, man-made accidents, natural calamities or even unexpected emergencies. There are various solutions to prevent business loss like planning a proper structured budget, outsourcing the team as well as having insurance for business loss prevention.