Six reasons why businesses fail
There’s a myriad of reasons why businesses fail to get off the ground. Here’s a snapshot of some of the most common reasons:
1. No plan/overconfidence
Perth Business coach Paul Roach is loath to use the word “arrogance”, but the number of people who launch businesses on little more than a wing and a prayer is truly staggering. Which is probably why they end up at his door.
“Probably 99 per cent of businesses I see don’t have a business plan,” he says. “So, they go in without the metrics and then wonder why they’re sitting on the edge of their seat trying to capture sales.”
You need to know what your goal is and how you will get there. It doesn’t need to be complicated. Roach says he has seen “pieces of butcher’s paper stuck to the wall” work as effectively as software. The most important thing is that your plan is front-of-mind and fluid. Inflexible plans can be as dangerous as no plan at all.
2. You don’t have a grip on your finances
Many business owners struggle to stay on top of their finances. Despite this, a survey of 1000 Aussie small business owners found 70 per cent still trusted “gut instinct” over professional advice.
f finance is not your forte, educate yourself, invest in software that makes the job easier, or hire a professional. Either way you need to stay on top of your metrics from day one.
Two related issues which commonly trip up new businesses are:
- underestimating working capital needs
- failing to manage cash flow and getting caught short.
Here Roach stresses the importance of consulting advisers before you get into trouble. An accountant, coach or mentor can help spot flaws in your business plan early which may lead to cash flow problems.
3. You aren’t cut out for business
Being the best plumber in town doesn’t guarantee you a successful plumbing business. You need to be an all-rounder and prepared for a hard slog.
“During the first 12 months most business owners run on adrenalin,” Roach says. Year two is when he often sees the reality of being a business owner kick in. Some – even those whose businesses turn a profit – may find it all too much.
“I’ve actually had people hand me the keys to their business because they realise they’re not meant to be a business owner, they want to be an employee,” he says.
4. Poor location/promotion
Your business is surviving, but it’s not hitting the targets you set. If everything else is sound you may have missed your market either through poor location or poor promotion. Put some money towards research and look at customer feedback.
The Australian Bureau of Statistics is great source of information for small business and has a consultancy service called ABS Business Consultancy.
5. Poor management/lack of training
Think about businesses you like. The staff are usually as important as the product or service they provide. Poor culture can infect a workplace and badly-trained staff will chase customers away. As the business owner, you are responsible for maintaining both good management and high levels of staff training.
6. Over expansion
Success can be a double-edged sword. Make sure you have some solid financial advice in place before expanding a new business. If you are not generating strong reliable cash flow you may be stretching your capital too far. Bear in mind expanding too fast without the right staff can lead to a drop in quality which will affect your customer base.