From Dave Lindahl our MassRealEstate.net Speaker July 26, 2016 6:30 – 9:00pm
Getting ready for Ultimate Partnering 8 with Dave Lindahl August 19-21, 2016
Here are the top 5 reasons why businesses fail and tips for avoiding them.
I will be going in depth through all of these at the upcoming Ultimate Partnering 8.
According to statistics published by the Small Business Administration (SBA), about half of all employer establishments survive at least five years and a third survive ten years or more. This is a far cry from the previous long-held belief that 50 percent of businesses fail in the first year and 95 percent fail within five years.
Better success rates notwithstanding, a significant percentage of new businesses do fail. Expert opinions abound about what a business owner should and shouldn’t do to keep a new business afloat in the perilous waters of the entrepreneurial sea. There are, however, key factors that — if not avoided — will be certain to weigh down a business and possibly sink it forevermore.
1. You start your business for the wrong reasons.
Would the sole reason you would be starting your own business be that you would want to make a lot of money? Do you think that if you had your own business that you’d have more time with your family? Or maybe that you wouldn’t have to answer to anyone else? If so, you’d better think again.
On the other hand, if you start your business for these reasons, you’ll have a better chance at entrepreneurial success:
- You have a passion and love for what you’ll be doing, and strongly believe – based on educated study and investigation – that your product or service would fulfill a real need in the marketplace.
- You are physically fit and possess the needed mental stamina to withstand potential challenges. Often overlooked, less-than-robust health has been responsible for more than a few bankruptcies.
- You have drive, determination, patience and a positive attitude. When others throw in the towel, you are more determined than ever.
- Failures don’t defeat you. You learn from your mistakes, and use these lessons to succeed the next time around. Head, SBA economist, noted that studies of successful business owners showed they attributed much of their success to “building on earlier failures;” on using failures as a “learning process.”
- You thrive on independence, and are skilled at taking charge when a creative or intelligent solution is needed. This is especially important when under strict time constraints.
- You like – if not love – your fellow man, and show this in your honesty, integrity, and interactions with others. You get along with and can deal with all different types of individuals.
2. Poor Management
Many a report on business failures cites poor management as the number one reason for failure. New business owners frequently lack relevant business and management expertise in areas such as finance, purchasing, selling, production, and hiring and managing employees. Unless they recognize what they don’t do well, and seek help, business owners may soon face disaster. They must also be educated and alert to fraud, and put into place measures to avoid it.
Neglect of a business can also be its downfall. Care must be taken to regularly study, organize, plan and control all activities of its operations. This includes the continuing study of market research and customer data, an area which may be more prone to disregard once a business has been established.
A successful manager is also a good leader who creates a work climate that encourages productivity. He or she has a skill at hiring competent people, training them and is able to delegate. A good leader is also skilled at strategic thinking, able to make a vision a reality, and able to confront change, make transitions, and envision new possibilities for the future.
We will be covering all aspects of effective management at my upcoming Ultimate Partnering 8.
3. Insufficient Capital
A common fatal mistake for many failed businesses is having insufficient operating funds. Business owners underestimate how much money is needed and they are forced to close before they even have had a fair chance to succeed. They also may have an unrealistic expectation of incoming revenues from sales.
It is imperative to ascertain how much money your business will require; not only the costs of starting, but the costs of staying in business. It is important to take into consideration that many businesses take a year or two to get going. This means you will need enough funds to cover all costs until sales can eventually pay for these costs. This business startup calculator will help you predict how much money you’ll need to launch your business.
4. Lack of Planning
Anyone who has ever been in charge of a successful major event knows that were it not for their careful, methodical, strategic planning — and hard work — success would not have followed. The same could be said of most business successes.
It is critical for all businesses to have a business plan. Many small businesses fail because of fundamental shortcomings in their business planning. It must be realistic and based on accurate, current information and educated projections for the future.
Components may include:
- Description of the business, vision, goals, and keys to success
- Work force needs
- Potential problems and solutions
- Financial: capital equipment and supply list, balance sheet, income statement and cash flow analysis, sales and expense forecast
- Analysis of competition
- Marketing, advertising and promotional activities
- Budgeting and managing company growth
In addition, most bankers request a business plan if you are seeking to secure additional capital for your company.
A leading cause of business failure, over expansion often happens when business owners confuse success with how fast they can expand their business. A focus on slow and steady growth is optimum. Many a bankruptcy has been caused by rapidly expanding companies.
At the same time, you do not want to repress growth. Once you have an established solid customer base and a good cash flow, let your success help you set the right measured pace. Some indications that an expansion may be warranted include the inability to fill customer needs in a timely basis, and employees having difficulty keeping up with production demands.
If expansion is warranted after careful review, research and analysis, identify what and who you need to add in order for your business to grow. Then with the right systems and people in place, you can focus on the growth of your business, not on doing everything in it yourself.