Why businesses fail and how to avoid it – Part 3
A couple of months ago we started what has proven to be a popular series that points out some common pitfalls and assists SMEs (and in particular start-up businesses) to make the right decisions and moves to avoid being counted amongst the very large percentage of small businesses that fail after a fairly short time.
It is also helpful advice to businesses that have survived, but just don’t seem to be growing or need to be placed back on track – so here is part 3 of why businesses fail and how to avoid it….
In part one we established that it was essential to know that failure is inevitable at least on some level and one should be prepared to meet it to overcome it. This is assisted by having a good business plan and sufficient start-up capital to see you through hard times. Leadership skills too are essential and should be learned, if not a natural ability.
In part 2 we spoke about the importance of having something special, understanding your target market and giving people a product or service that they really want or need.
In part 3 we have a few more important considerations to take in to account if you are to make a success of your business where so many others have failed…
Being in the wrong place – One of the first and most vital decisions to make if you are to have a business that requires offices or a shop, especially if you are dealing in the retail space, is to choose the right premises in the right place.
Many have observed that McDonalds is not in the hamburgers business, but actually the property business – and you’ll understand this if you look carefully at how strategically every new franchise is placed! Think the same way when deciding on your location. Being where you will get maximum exposure, or an office park that gives you a professional look, is essential.
Choosing the wrong partner – Partnerships, they say is like being in a marriage. Once a business partnership is established you are there ‘for better or for worse’ and ‘for rich or for poorer!’ Make very sure your partners are not just chosen on financial grounds, but share the same goals and ambitions for the business and that you are compatible on a personal and business level! Having the same ethical standards is crucial.
Not understanding profit and loss! – An Entrepreneur needs to have an eye for real profit all the time. Revenue is not necessarily profit. Statistics show that only about 40% of businesses are actually making profit, because they don’t understand that making real profit is only when there is room for growth!
A good financial management company like Ratio Accounting do understand the difference between income and profit – and can especially see the warning signs when a loss situation may be approaching.
Good accounting needs to be practiced on a daily basis in every business. Compliance to business financial requirements and taxation laws also suggest that one of the wisest investments is to hire a good Accounting firm to partner with you from the outset.
We can be surprisingly affordable and you need only contact us for solid advice and a consultation that will take a view to ensuring that you are one of the businesses that make real profits and succeed on every level!