The common reasons for business failure

If you are reading this you may already have assumed you are facing business failure or you are hoping to avoid making the steps that could lead that way. I read an article recently that cautioned against risking love, health and happiness chasing a dream that was broken. Better it said to accept that one business has failed and to close down and start again, having learned the lessons.

It is a fact that many small business that set up are closed down again within three years. The harsh reality is that all businesses fail but a disproportionate of small businesses struggle because they simply do not have the resources which larger companies have to get them through the hard times.

Of course business failure does not always occur because of something that you have done in your business. In a trading environment, there are buyers and sellers, and your business will be as much affected by what happens to them as what you yourself do.

So what is business failure? Commonly it is a position reached by a business, where it can no longer continue to trade without incurring further liability. The business will probably be insolvent, in that it cannot pay its debts as and when they fall due, or its assets are less than its liabilities. The important matter which was alluded to above is that you have a grasp of the state of your enterprise early, as to realise too late that you are facing failure can lead to greater legal problems later on.

Businesses fail for a variety of reasons. Amongst the reasons that we come across are the following:-

Sales: Are you selling what people want to buy. With the best will in the world and the highest motivated staff, if you have a product nobody wants them you will not sell it. If you are not selling you are not generating revenue and so not covering your costs.

Competition: Is your market place too congested. Are there people out there doing what you do, but better, cheaper, in a ore efficient way, with a better message.

Skill Set: You may be a great engineer, but that doesn’t mean you have the skill set demanded for all operations in a business. This is a common problem for the small SME. It is important to surround yourself with people who can do the things that you can’t such as selling, or credit control or accounts.

Financial Control; Do you know your sales, do you know your cost of sales, do you know your breakeven point. These are fundamentals for any business and you need to be all over these to have a chance of surviving. It is easy for costs in a business to escalate. Have a look at any successful business and you will see costs driven to the floor. Ryanair is a prime example of this.

Cost of finance: Are you borrowing at the right rate. Do you know what it costs you to run an overdraft or pay your loans, or factor your invoices. All financial elements of the business have a separate cost. Are yours being done at the best rate available.

Lack of resource: Do you actually have enough cash or credit to be able to complete the jobs you are taking on. At present this is a key issue for many businesses. They have work they can quote for and are getting that work in at a profit, but they do not have the resources in cash available to get supplies to start the job.

Overtrading: The flipside of the above is that you actually take on too much too fast and simply run out of money to finish, as supplies and extra staff have drained what resource you did have. Always grow at a steady and affordable and planned rate.

Customer or supplier insolvency: Bad debt can cripple a small business. I have seen lots of little business forced to close because they have suffered a bad debt by a big customer. Never be too reliant on one customer or supplier no matter how tempting it may seem or prestigious they are. If something goes wrong with them, they will take you as well.

There are so many things that can go wrong aren’t there. Yet it can be the best thing that you ever do if you get the planning and execution right at the outset.

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A few weeks back I had a meeting with an extremely successful company that was facing a very common problem.  They have an in house IT person (just one), and a marketing director as well.  Both of them were on payroll earning a very nice salary by the majority of people’s standards.  The CEO of this company, however, has not been very happy with either of these 2 people’s results, and this is having the end result of hurting both the company’s top and bottom lines.  In order to set up more accountability for each department within the company, the people in charge of management have requested a detailed listing of the scope of responsibilities and planning that every department has.  Despite having requested this several weeks prior to my meeting, they continue to wait for these things to be delivered.

I write frequently about how important it is to make sure you have a proper strategic plan in place for all organizations.  Actually, I wrote an eBook about it not too long ago.  The reason I wrote it was for companies that can’t or don’t want to hire us to help with the creation of a strategic plan, and the book is meant to help entrepreneurs to get on the right path as fast as possible with a very simplistic method to creating their own strategic plan.

The big consideration that makes having a strategic plan so important is that the act of creating it allows a company to properly lay out the Mission, Goals, Objectives, Vision, Actions, and Accountability that is so extremely important to being a successful business.  The business I mention in this article is currently creating and improving their strategic plan.  I submitted a Services Agreement to compliment their planning process and speed up their business development efforts.  This will help the company to quickly create a true marketing plan, not to mention the most valuable thing to this specific business, properly guide the creation of their internet marketing campaign.

The vast majority of small and medium businesses typically don’t keep an in house IT employee, nor do they often keep a marketing director.  There are typically several reasons for this, but most of the time it comes down to the fact that paying the salaries and benefits for these people is too prohibitive.  But it doesn’t matter whether or not the IT and marketing guys are kept in house or not, because the key to success is going to come from a very important element of the strategic planning process.  When crafting your plan the when, who, and what are what need to be very clearly laid out for every single part of the business.

I don’t want you to get the wrong idea about me and my thoughts on employees.  It isn’t that I dislike or have anything against employees.  Its merely that I have a difficult time with any person that doesn’t bring their own fair value to a company.  And in the current competitive market of today, I can see no reason to pay employees who aren’t performing.  Especially when their jobs can be easily outsourced.

Clifford Jones is the founder of WealthNet Partners where he focuses on business marketing. One of the specific things he helps his clients do is increase web traffic for their websites.

Article Source:http://www.articlesbase.com/strategic-planning-articles/a-lesson-in-leverage-1402955.html

A business plan’s table of contents is presented just after the cover sheet, giving a full overview of the sections within the plan. Why, you might ask, is a table of contents needed if the plan is intended to be read straight through, from start to finish, by its audience of potential funders? The reality is that readers will often want to jump around during and after their reading of the plan if they become engaged enough to consider it an option for funding.

Looking at Strategic Fit

Readers will be concerned with the strategic fit of your business concept. Strategic fit is how the activities of your organization work in concert to contribute to your competitive advantage. For example, if the competitive advantage discussed in your competitive analysis describes building a premium brand based on high quality, discussion of coupons and rampant discounting in your marketing plan may not jibe. In a sense, all of the aspects of your business must build towards achieving the competitive advantage you mention. There is good reason for readers to flip back to this section as they examine the rest of the document.

Comparing Numbers

Another reason why readers may jump around is to compare the numbers you present in the financial statements and financial summary at the end of the plan with the methods and tactics you detail earlier.  They will look to see that, in their understanding, you will be able to accomplish what you say you will within the level of expenses you describe. They will also want to check that your revenue projections are reasonable given the market size and specific customer target markets you detail in your industry and customer analysis sections.

Preferences of Individual Funders

Different individuals reading your plan will have different backgrounds and expertise. They may feel most comfortable evaluating the section of your plan related most directly with their expertise (such as marketing, operations, finance, or human resources). For this reason, your plan must make it easy for readers to jump to any section they see fit. While the section may build upon ideas discussed in previous sections, each should also stand alone to a certain extent.

Eric Powers is associated with Growthink, a business plan consulting firm. Since 1999, Growthink has developed business plans for more than 2,000 clients. Call 800-506-5728 today for a free consultation with a Growthink business plan writer. Or, if you’re writing your plan yourself, Growthink also offers a business plan template.

Article Source:http://www.articlesbase.com/strategic-planning-articles/business-plan-tips-your-table-of-contents-1367040.html