Through research and over thirty years of experience with orchestrating the set up of businesses, running several successful businesses and being an accountant to many and their owners, I have seen many come and go. This is a list I have compiled of reasons why many businesses fail, and the errors many make due to failure to seek proper guidance and not using available resources that could dramatically reduce loss and improve profitability.
1. Inadequate accounting records, lack of a system, not controlling costs, poor financial management.
Many business owners learn this factor after previous failures. Systemise as many processes as possible, create system guides and manuals, develop a determined drive toward continuous improvement. Keep records of all costs and any money spent that can be attributed to your company. All receipts and invoices should always be accounted for.
2. Under capitalised, lack of working capital, attempting to grow too fast, drawing too much from the business for personal reasons.
Your business will inevitably fail without sufficient capital to keep it going until it becomes profitable. This is just a matter of time. This is also pertinent when a business tries to grow too fast. A fast rate of growth will suck more cash. Your business may even be profitable, but will the demand for cash from the fast pace of growth destroy it before the growth levels off. This must be accounted for, budgeted for, or the growth controlled.
3. No mentor, lack of external advisors, not seeking professional help.
Gather support around you. Business can be tough. Favours are not often given freely. Seek as much advice as possible. Most decisions don't need to made urgently but analyse them as thoroughly as possible.
Being a sole business owner is one of the loneliest jobs in the world. It can be difficult confiding in employees, customers etc for fear that they may exploit your weaknesses. The temptation is to "go it alone" by working in your business and not on it. Therefore, you become directionless, not aware of what you are doing, why you are doing it and where you are going
4. Poor marketing, failure to sell aggressively.
Good marketing is regarded as one of the hallmarks of a successful business. Without it, your business may fail quicker than for any other reason. Understand and learn about the concepts of good marketing. Not just securing the client, but holding the client and obtaining repeat business.
Be where the customer is with what the customer wants at a price the customer finds acceptable.
5. Poor vision, inadequate planning.
It is imperative that you constantly look forward into the future, determine trends, what is the competition doing? What are they likely to do? You know your business better than anyone else so where is the industry going and what must you do to survive? Ask yourself the hard questions and answer them honestly.
Failure to have a successful business plan will result in confusion and frustration.
6. Lack of ambition or motivation, not mentally prepared to run a business, get to know the rules of the game.
This is very important. This is the fuel that drives your motor, without it you will go nowhere.
You are responsible for your business. You are in full control over your job and security. You don't have to "look good" to anybody but your customers. Learn to pass on as much credit as possible. Just focus on the success of the business and pay yourself from the profits of the business only.
7. No personal or self development, unable to operate a business.
The success or failure of a business depends entirely on the owner. The rules are the same for all types of business.
Knowledge and positive thinking creates excitement and motivation. I once worked for a business owner who was leader in his industry and he tried to read a book a week. On-going self development is crucial.
Too many owners do not take the time and energy to improve their own ability to run their business. You need to develop the maturity, drive and energy to manage yourself and a business simultaneously.
As you develop your own ability in all aspects of running a business, you will become better at running your business and your business success will improve.
8. Poor location.
This is important considering you are depending on the public for your profit.
9. Not properly executing the 3 key functions all businesses must have.
The business owner tries to execute all 3 of the basic functions needed for a business to succeed and without help (See the E Myth Revisited by Michael Gerber).
The 3 key functions a business must have executed to succeed are:
- The technical function. The execution of the actual service or product provided by the business eg. repairing the car for an auto company, drafting the engineering plans for an engineering firm.
- The managerial function. The organisation, coordination and supervision of the people, assets and activity of the business ona daily basis.
- The visionary function. The discovery, setting and communication of the future goals and purpose of the whole business. The leadership to get all parts of the business flowing towards the long term goals established.
Yet many business owners continually try to personally perform all 3 functions themselves.
It is common for most owners to possess the technical skills but you will also need the managerial and visionary skills. You must work to learn and develop these. This process should be continued throughout your entire business life.
10. Starting the business for the wrong reason, understanding why you are in business.
The only reason to have your own business is to make money.
This may sound harsh, but you will secure rewards and remuneration only from your business profits. Do you wish to work to lose money or increase your debt?
Philanthropical and emotional pursuits can still be had from the profits and personal time gained from your business.
11. Understand your customers perspective and motivations.
You need paying customers to make sales and ultimately a profit. You must understand your customers perspective to entice them to buy your products or services. The owners focus should always be in this area. Without understanding your potential customers perspective, your business will most likely fail.
Learn about your potential customers, design your business focussing around their perspective. Obtain help to see your customers viewpoint if warranted.
Other important aspects to running a successful business:
- Employing good people
- Fostering your own self confidence
- Making and taking calculated risks
- Being a leader - direct, lead and manage
- Developing strong analytical ability
- Understanding the 3R's, Resilience, Resourcefulness, Resoluteness
- Having good experience in the industry
- Restrict and budget your drawings