How many times have you as a business owner heard about how often small business fail. There are all kinds of statistics available and often they sometimes don’t agree to actual numbers, but then again, I imagine it is difficult to get an accurate count. Regardless, everyone seems to agree that the number is very high particularly in the first years of life of a new business.
There are a good number of reasons businesses fail, but today I want to talk about 3 reasons that lead to failure that can be avoided. The first is what I call the “wrong fit”. This one is my favorite if one is allowed a favorite reason to fail something. It starts when the new business owner chooses to start a business that is not a good fit for who they are. They simply do not have the personality, character or perhaps attitude for that particular business.
A great example is a business that requires good customer service skills, such as retail. Many folks just don’t like dealing with complaints or customer challenges on a daily basis. I have seen business owners that carry a chip on their shoulder all day because a customer lodged a complaint. How miserable will that owner be at the end of day or how long do you think their passion to be in business for themselves will last under the circumstance?
One of the first issues I engage a new client over is their fit for their business and why they are in it. One might be surprised how many people are a square peg trying to fit in a round hole and the result is the business is slowly dying because the owner really does not like it.
The two other major causes of business failure that can be prevented are lack of a solid business plan and a failure to manage your cash flow. Starting a business without a good business plan is like trying to drive across the country without a map. You might make it but how much time did you waste and how much more was the cost of the trip than if you had had a good map? A business plan should be a “living document” where the owner can test and validate assumptions he or she is making. The plan helps reduce risk by challenger the owner to gather all the available information they need and making sure that their business idea is plausible. A well-thought out plan does greatly reduce the risk of failure and in-turn increase the chance of success.
Cash flow or as I like to say “cigar box management” should be an obvious issue that must be address on a daily basis in any business. When I was growing up I actual saw small businesses that managed their cash flow using a cigar box. Credit cards did not exist and all payments were made in cash or by check. These were placed in a cigar box and at the end of the day/week/month if there was still money in the box then the business was still viable. Of course this system for the most part ignored other cash impact items such as A/R, A/P or Notes Payable.
Today cash flow management is a little more than the balance in your checkbook or money in the cigar box. However, there are a number of software programs available that can make the job much easier. The reporting offered by the programs can help the business owner plan expenditures as well as sometimes light a fire to work harder on collections.
There is no doubt that every business cannot succeed. However, with a little more effort up front you can increase the chances of success. Make sure you and your business are a good fit before you make the investment. The preparation of a business plan can assist you in this evaluation as well as give you that road map you will need in driving your business forward. Finally, managed your cash flow by building processes and putting policies in place that will maximize your collections and control your payables. All of this takes a bit of planning before you plunge in but surviving and thriving are so much better than the alternative.
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