Business Failure, The 8 Traps Causing Failure And The One Attribute Which Ensures Business Survival
It is estimated that 78% of all small business start-ups fail within the first twelve months years, and long-term survival is likely for only 22% of all new business start-ups.
At the same time huge corporations with seemly vibrant trade suddenly close their doors.
Why is this so?
An analysis of the reasons for business failure suggests that over 60% of all business failure is due to poor management practices.
The one attribute which must exist in every firmThe only rule to survival is that money in must be greater than money out. We often forget this. Too many entrepreneurs think that extra cash will solve almost every problem. Good management - not money - is the key to a business flourishing or dying.
Does this mean that the old saying about using other people's money is wrong? No! But the money coming in each year must be greater than the money going out for expenses, owners' private expenses and the costs of servicing loans. Profit is vital to a business but cash is king.
No cash no business
Learning management skills
There are two very good ways for small business owners to learn management skills.
One is to find out what the "high-fliers" in your industry do, and do the same! Perhaps then you will become a "high-flier" too!
Another is to study the mistakes of others. We have identified those often made by business owners.
The following are the 8 traps which cause business failures.
Trap 1- Discounting the need for experience
If there is one thing that distinguishes big business management from small business management, it is that the owner/manager must be the chief cook and bottle washer in a small business whereas each of the different facets of a business such as accounting, marketing, purchasing, research, training and sales, has a specialist who is responsible for them in large firms.
Seldom does one person have an in-depth knowledge or experience in all management disciplines. So the businessman who has a real skill in only one or two needs to be strengthened by knowledge in the others.
The best Chef in Australia will find it hard to succeed in business for himself if he has no skills in marketing or financial matters.
One solution is to get some training in operating a small business before you start; Colleges now have good programs for the intending new purchaser.
The owner should review her own weak points. The gaps can then be closed by a crash self-development program, getting some knowing partners or staff, or by hiring outside consultants.
Trap 2 - Sloppy Bookkeeping
New operators often ask the question-What books should we keep? The question invites a short and concise answer. But it is the wrong question and the accountant who answers does disservice to his client.
The question is not-"What should we keep?"- but "What do I need to know?" The correct books meticulously kept are useless if the proprietor makes no use of the information they convey.
A poor record keeping system leads to serious problems in every aspect of the business from advertising to sales, from stock control to taxes.
A record keeping system should be easy to maintain and regularly kept to provide current information quickly.
The appropriate records will tell you a lot of things about your business that you will need to know! If it doesn't you need to change it. Information unused is worthless information and a waste of time.
Trap 3 ? Spending more than you receive
One of the most dangerous pieces of information that traditional accountants give is a 'breakeven figure' which tells you the level of sales which is just sufficient to pay expenses. But what good is that if the business is your only income producer? How will the business survive if you can't pay the rent on your home or make mortgage payments or pay school fees?
A more meaningful figure is the sales required to produce the necessary cash to pay all your living expenses and your taxes.
Many proprietors don't know that a growing business requires more and more capital to support it. Even if a doubling of sales does not require an increase in staff or equipment, it does require an increase in stock and debtors.
In most small enterprises this can only come from profits. It is seldom that the money in the bank today is completely available for spending today.
Often a shortage of cash is a symptom of other problems with the business, so your first move should be to your accountant.
Trap 4 - Failing to Plan
Failing to plan is the single most common management trap among struggling business owners! Planning is very important for 'Big Business', but it is vital for the small firm because it hasn't the resources to cope with any mistakes as does the large organisation.
Developing plans for your business isn't easy - only necessary! We often hear the plea, 'But it is impossible to accurately predict the sales in this business!' And often they are right too!
But it isn't necessary to be accurate in predictions and estimations if you monitor and adjust as you go. Nor are figures as important as the trends. So absolute accuracy isn't necessary. A poorly prepared plan well maintained and adjusted as you go is a thousand times better then no plan.
Trap 5 - Dilly Dallying
The typical small business proprietor has too much to do. Surveys suggest that most small business owners work a sixty-hour week with some regularly doing over seventy. Does this sound like anyone to you know? So busy are they that they haven't time for trivial matters and all time is spent on vital matters dealing with business management-right?- Wrong!
A trap for the unwary is to allow the business to run the proprietor instead of the proprietor running the business. Sometimes this a symptom of poor planning, but often owners fritter away their time on trivial matters doing insignificant tasks which staff should do while vital jobs are left undone.
A safeguard against this is to ask yourself several times a day 'Is this the most productive thing I could be doing right now?' And do the most productive task right now.
Trap 6 - Poor Marketing
The first priority of every business is to get and keep customers. No matter how good the service; no matter how excellent the product; nothing happens unless you have customers.
'The best advertising is word-of-mouth' is a maxim that has harmed more businesses than any other truism. It's not because it's untrue, word-of-mouth is probably the best advertising. After all, it is free, it is believable and it works. But too often it is used as an excuse for having no marketing at all.
So even if an enterprise adopts word-of-mouth advertising as its preferred marketing strategy, it should formulate a plan to stimulate its customers to talk to their friends. What if it isn't bringing in new customers at a fast enough rate to remain profitable? I see so many clients who buy coffee shops and then sit back and wait for customers. You can't grow that way.
When you get down to the basics, marketing is fairly simple really. You need to know exactly what features your product has and benefits your customers derive from those features. You need to know what sort of people your existing customers are, and then explore how to present you product/service to the same sort of people.
Whatever your business is, you should strive to make it 'different' in some way. No two restaurants should be identical even if offering the same cuisine. Be independent and innovative in what you do and offer something different-even if it is in the quality or personal service. Give customers a reason to come to your restaurant instead of the one up the road.
Take the time to explore ways of increasing the number of customers. Sales seldom increase without some effort, and a business standing still with no new customers is a business beginning to die.
Trap 7 - Poor employee Management
Despite their good reputation for employer/employee relationships, small businesses often mishandle staff. Small business proprietors continually complain of the poor staff on offer. They complain of employees not taking direction, being unenthusiastic at work, taking sickies and long lunch and tea breaks.
Disgruntled workers are poor performers who chase customers away. Yet it has been proven that the cause of most of these problems is not the poor quality of the staff offering themselves for jobs, but inept staff management.
Very few small business proprietors have formalized training programs for their staff. Nor is the typical small business owner particularly skilled in hiring the right staff. If the employee who is hired does not have the necessary skills when hired, then lack of suitable on-the-job training ensures that she will never acquire it.
Another problem for the small business owner is that because the closeness with which he works with his staff he becomes so friendly with them that he lacks the necessary assertiveness to create a happy, co-operate environment in which quality service is given.
In most cases of failing firms there is a low or complete lack of morale.
So check the morale of your staff. If you think poorly of them, it's odds on that they think poorly of you. Do something about it because low morale is another sign of a failing business.
Trap 8 - Assuming the proper role
Why is it that one restaurant succeeds and grows while another with similar service, location and capital just doesn't get off first base? Usually the difference is in the skills of the owner.
The skills required change as the business changes. We all know about the chef who prospered while he spent most of his time in the kitchen doing what he did best. His troubles started only when the business grew to the extent that he needed to be out of the kitchen so much that he needed to employ other chefs and kitchen staff.
While he was doing everything, he could easily keep all the things he needed to know in his head. Now he can't, and the records have not been put in place so that he know what's going on.
He forever lurches from one crisis to another, from one angry supplier to another, from one dissatisfied customer to another, from one angry employee to another. His business is doomed if he doesn't realise that his role has changed.
The beginning business needs an operator. Someone who can get his hands dirty and perform any of the functions that are required. As the business grows the owner can be a chef no longer but needs to assume the role of manager. Paperwork has multiplied, staff and equipment have increased and the role of the top man has been made more complicated. Failure at this stage to grasp the new role may mean the failure of the business, too! The owner can be a chef no longer!
It is difficult for the small business owner to know when each stage of his business has been reached and the business may never reach the transition stage because he fails to allow it.
This is the reason small business owners must be careful in their choice of accountant. If his accountant merely produces tax returns each year without advising on the health of the business-then the owner is alone, indeed!
Contact Kelvyn Peters CPA & Associates. You just need a little help, you will find it at http://profitstrategies4business.com
Kelvyn Peters is one of Australia's longest serving Tax Agents. Kelvyn was registered in February 1962.
He is a director of Restaurant Catering Qld Inc the peak employer representative in Queensland, and advised the hospitality industry for many years.
His speciality is moving in to rescue ailing restaurants.
Kelvyn Peters CPA has spent over 20 years experimenting and researching methods to help small business in meaningful ways that are affordable.
Kelvyn and his associates have perfected it with their local clients now they are going global. http://www.profitstrategies4business.com
Site Selection - Slice of Life, A Car Wash and Detail Center DownTown
There is a continual trend we are seeing which I can remember participating in over a decade ago, when cities were trying to figure out how to increase sales tax revenues when the large box stores outside of town came into nearby or surrounding areas. For instance a big and easy example would be Wal-Mart. Sam was smart and built his stores just outside of town near towns, which drew from neighboring towns of 5,000 or more from three to five directions. If you look at an over lay of Wal-Mart stores to an atlas of that state you will see the rural America can get anything they need at the best price without driving all that far.
Employee Email and Internet Use - A Small Business Guide
Boat Hull Cleaning Procedures for Owners and Detailers
For really tough boat hull cleaning you will need to break out the acid. Muratic acid is the best for this. You'll want to have a 50/50 mix of muratic acid of 6-8% concentrated (12% is the highest concentration you can legally buy over the counter), water and a good strong sprayer. You can purchase muratic acid at Wal*Mart, K-Mart, Pool Supply Stores, Home Depot, Lowe's, Van Waters and Rogers Chemicals. Sears Craftsman makes a nice strong sprayer or try a local store for another brand of commercial pump-up sprayer.
Building A Business That Works For You
Before you want to build your business, you need to know why you are in this business.
Effective Customer Interviews Make Life Much Easier!
One of the critical success factors for service-related businesses is our ability to understand a client's needs and requirements. Misunderstandings can lead to loss of repeat business, economic loss, and damage to reputation.
Concrete Cleaning Discussed at World of Concrete Expo 03
If you are in the pressure washing business and are serious about what you clean on the ground floor, I suggest you attend the WOC. The WOC is the World of Concrete Expo in Las Vegas, which is held once per year. Each year it grows and is now one of the largest trade shows in Las Vegas. We spent two days walking the halls, meeting vendors, potential customers and learning about new materials, cleaners and equipment.
Getting Behind in Your Work? You Need a Virtual Assistant!
If you don't know what a Virtual Assistant (or VA) is, don't worry. I only came across the term myself about a year ago. It seemed like a high-tech occupation that I would know little about until I stumbled across some information and found out that I was a Virtual Assistant! Not only that, I realized that small businesses were missing out on the opportunity to improve their efficiency by neglecting the vast talent so easily available online.
Don?t Quit Before You Get to the City!
We were more than excited. Our women's doubles tennis team had won our division, successfully competed in three rounds of the playoffs and had emerged as finalists in the city competition. We fought hard and the results had paid off, but things didn't always look so promising. Just last season we finished in 3rd place. Three of our members decided to throw in the towel and left to find new teams.
Small Business - Is The Accounting Profession Ripping Them Off?
My 16 year-old daughter said, "Gee Dad! You look just like an accountant" And she wasn't being complimentary. Accountants are perceived to be boring, stodgy and conservative.Over the years we've been the butt of many jokes. I've heard them all.Why did the accountant cross the road? Because he looked up the file and that's what they did last year! Ha Ha!What do accountants use as a contraceptive? Their personality! Ha Ha!"Why do accountants become accountants? They don't have the charisma to be undertakers! Ha Ha!What do they call an accountant at the bottom of the sea? A bloody good start! Ha Ha!I think I am the exception.That's why I've begun to call myself a business strategist and counselor. "You're still an accountant," says teenage daughter. I am still an accountant and I'm still as passionate about it as the day I started. Because accountants have an impact on people's lives. The advice we give changes people's businesses which in turn changes their lives. I'm excited in my role of accountant.Accounting is not stodgy. Accounting is exciting. Accounting is cool! My ambition is to become the "cool dude of accounting". (do they still say "dude", do they still say "cool". Remember that song: When I say, "cool, man, cool, I don't mean cool, man, cool, I mean you leave me cold, Jack")We were throwing some ideas around with some of our clients as we do from time to time, looking for that unique benefit that our firm gives to our clients. That unique something that distinguishes us from other accounting practices.One said, "You have helped me to improve my business. Not only am I making more profits and have more to spend, but I also have more time to spend away from the business. The more time I spend at home with my family the happier my life is. And the happier I am the happier my wife and children seem to be. When my wife is happy all sorts of good things happen ? even our sex life improves. That's it! You can advertise that using Kelvyn Peters CPA and Associates improves your sex life"I don't think so! Sorry, we haven't accepted his idea. You're completely on your own in that department, but we can help you improve your business and consequently your life. And your goal might not be extra profit but extra time for living! We know we can because we are doing it for others.We repeat ourselves so often because the truth is the truth and there is only a limited number of ways to tell it. You've heard this before. If you are spending every waking moment in a hassle about your business, there must be a better way. There is! Accountants have been ripping off their clients for yearsIn 1973 I attended a workshop for accountants at the Finance Management Research Center then headed by Dr Keith Cleland. The workshop was intended to drag participants into the 20th century."Accountants have been ripping off their clients for years", he told us. The 25 participants were shocked. These represented vibrant accounting firms from all around Australia, both large firms and small. They were at the cutting edge of the industry. Otherwise they would not have been at this kind of workshop.To a person they resented that comment and one fellow wanted to punch him on the nose. (It wasn't me, but I would have held his coat).By the week's end we discovered how we were charging high fees for things that our clients couldn't understand, couldn't use and didn't need. At the same time we were neglecting the information that they did need to increase their profits and safeguard their businesses. 20 Years Later what's Changed? I attended a week long seminar hosted by CPA Australia in 1993 which was to train us in "client based accounting".Dr Cleland presented the initial module. He did not openly criticize accountants this time, after all, it was the CPA's hosting it, but he gave almost the same speech (same jokes, too) as he had 20 years before."These things aren't taught in Universities", he said, "so the accounting profession has mostly ignored them. They have let small business down but things are changing".Know-it-all, Kelvyn Peters had to jump to his feet and say that the doctor had said exactly the same thing 20 years ago. Where were the signs of change? Universities were still not teaching accountants how to help their clients."This seminar with CPA Australia and the suggestion they might make client based accounting a speciality is a good sign", he replied.10 Years Later?Nothing has changed. Our hopes have withered on the vine and small business must look elsewhere for help. Recently I was called in to assist an ailing restaurant. We were happy to work with their existing accountant. We'd rather do the fun stuff and let the accountant do the boring tax returns and compliance work. In this case the client insisted we take over the whole of the accounting function.The accountant was most unhappy. "They are difficult clients", he said, "I have kept the fee lower than it should be and I have done extra to help them".Indeed, he had! The financial statements were beautiful to behold with colored graphs and key ratios compared against industry average. (most accountants still don't do that.I had advised that both wages costs and cost of foodstuffs were too high. Our focus was to form tactics to reduce them."But I had already told them that", said the Accountant, "what do they need you for?'I told him that the client knew the kitchen wages were too high and what he wanted was for someone to show them how to reduce the wages in the kitchen."I can't do that", he said, "I'm an accountant". I would have to camp down there in the restaurant to see what's going on. And they wouldn't pay the fee".Yes they would. They were going to pay me.Most accountants see their role as being the provider of financial statements, cash-flow projections and tax returns, and there's the rub. Each of these is a tool not an end in itself. It's like giving the client a hammer and saw and telling him to go build a house. He needs more than the tools, he needs to be shown how to use them.Of course the client will complain about fees whatever the level if all he receives are not useful to him. Accountants generally are flat out preparing financial statements and tax returns. Meeting dead-lines. They haven't the time to 'smell the roses'. Anything that doesn't help meet a dead-line has to wait until later. Often its too late.I may still look like an accountant, even the cool dude of accounting, but there is nothing I like more than talking with a business owner about his business. There's nothing a business owner likes more than discussing his business and planning to make more money. It's great fun and he loves to pay me for it.
Does Your Company Have a Business Image Manual
Every business regardless of size needs a "Business Image Manual" to protect their band. Even the smallest companies with only a few employees is well served when there is a business image manual in place. For 15 years I ran a small business, which I eventually franchised and later expanded to 23-states and 4 countries. What I had learned after franchising is that; I should have written my image manual 10-years prior. At first my business was just me alone; like most small businesses, but then due to my hard work and customer service, I had to expand to meet demand. Each time I added people to the team, I seemed to be rehashing over and over again my theories on business image. Often I would have to harp on the issue with part time employees or even summer help. What I needed was a manual. However, being a head strong entrepreneur in those days, I like many entrepreneurs of small businesses said; "What do I need a bunch of manuals or even a business plan for that matter?" After all most of us know our businesses very well and we do not have to write it down. We just know thru intuition what will work and why and surprisingly we end up making few mistakes, but when we do they are usually quite large and costly lessons.
Everything I Need to Know About Business I Learned From My Nametag
So there I was ? sitting in the audience of an on-campus seminar. Surrounding me sat hundreds of fellow students; each of us wearing one of those little, handwritten, adhesive nametags. When the event was over, we all filed toward the exit. I approached the door and noticed a small trashcan filled to the brim with ripped up, used nametags.
Book Yourself Solid Key #5: Go Forward With Gusto & Articulate What You Do
Want your small business to flip instead of flop?! Statistically half of the entrepreneurs reading this will be out of business in three short years. Establishing a long standing, profitable and successful business absolutely depends on your ability to convey a clear message. A heartfelt message that tells clients exactly what you do, the specific 'invest-able opportunities' you bring to the table and all the ways clients will have a bigger, better, fuller life as a result of working with you.
Have You Thanked Your Competitors Today?
Competition in the business world is often viewed as a negative thing, but it doesn't have to be. Competition can benefit you, your competitor, and especially your customer!
5 Good Reasons a Self-Employed Professional Should Take Vacation
So you think you're not justified in taking time away from your business because you're self-employed? Here are five great reasons why you should definitely take a vacation:
When and Why YOU Are the Best Writer for Your Business Plan
WHEN you are operating or planning a small business that is seeking funding for less than five million dollars, it's wise to consider writing your own plan.
Operational Aspects on P and L Statements of Mobile Services Businesses
What kinds of things effect mobile service businesses P and L's? Well this is an excellent question and as I see the Annual reports of companies who do mobile services, such as Ecolab, Service Master, Halliburton, Luftstanza Food Services, etc. I see many similarities. For instance we have noted as many of the others the climate conditions, El Nino effects, Mud Slides, road closures, snow. low temperatures, Hurricanes, etc.
Small Businesses - Big Obstacles
Everyone is talking about small businesses. In 1993, when it was allowed, more than 90,000 new firms were registered by individuals. Now, less than three years later, official figures show that only 40,000 of them still pay their dues and present annual financial statements. These firms are called "active" - but this is a misrepresentation. Only a very small fraction really does business and produces income.
Consistency with Janitorial and Cleaning Businesses
Consistency is a huge word when operating your business. I believe it is one of the key ingredients to success. You should strive to keep things exactly the same on a daily basis. A quick example, something that upsets me, if I go to McDonald's at 10:30 P.M. a 1/2 hour before they close and ask for a cheeseburger and chocolate shake. What answer do I usually get "sorry the shake machine is closed for cleaning" This to me is not fair I believe the first customer coming through the door, should receive the same service and items as the last person coming through the door. NO EXCEPTIONS!
Debt Collection Techniques
Here are some sound debt collection techniques that can be followed by businesses to mitigate the bad debt crisis:
The Perilous Franchise Agreement: What Did You Sign?
Purchasing a franchise has become one of the most popular avenues for individuals looking to escape the rigid work day of a 9 to 5 job and take the leap into the world of independent business owner. After all, who doesn't dream of being their own boss and controlling the limits of their own financial future? For anyone looking to act on their entrepreneurial spirit, franchising can indeed offer many attractive qualities that can provide excellent growth and earning potential, as well as satisfy that longing for independence. On the other hand, individuals that jump into franchising too quickly without adequate planning can find themselves mired in financial and legal problems. Even the most sophisticated businessperson can fall into this trap and be left scrambling to understand exactly what they signed.
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