I don’t think we need to repeat the grim statistic… if you are a business owner you know you are up against the odds. Yet still, we try, believing we have what it takes to build the next 8 figure company. That’s admirable, small business owners are the backbone of this country. Without people like you, the UK would be a fraction of what it is.
But there’s a big elephant in the room… failure.
No one likes to talk about it, no one wants to admit they failed. We are getting better at embracing it but it’s seen as something to be ashamed of in society. (the media doesn’t help!). As accountants, we see all types of businesses. Some start out as small ideas and grow into substantial companies, others fall by the wayside. We’re had our fair share of failures too. We’ve made the mistakes, but we learned from them and moved on. So what are the most common reasons businesses fail?
No Cash Flow Control
This is completely avoidable and super common.
Business starts out with a pile of cash, a directors loan, a bank loan or some investment. Then directors go out on a spending spree, office leases, equipment, agency retainers, software subscriptions etc.
But at some point they lose track, they forget how much they are spending, they don’t consider the time it takes to get invoices paid, to bring new clients on board or natural lulls in business.
When they finally see the true picture it’s often too late.
We’ve seen more than one seemingly sound and viable business go under unnecessarily because of poor cash flow control.
There’s simply no need… tools like Xero can help you loads. We can help you too.
I know, as an entrepreneur you want to swashbuckle your way through. Making decisions on the fly, taking risks and dealing your way to unicorn status!
But please, just take some time to plan. Decide on where you are going and what you are going to do to get there.
Think of your business like a plane. You need to know your destination, heading and weather to get anywhere. Without those, you can be flying in circles seemingly making progress but actually achieving nothing.
Schedule time to plan and review that plan at regular intervals.
- How’s your progress?
- What are you spending?
- What are you making?
- What’s your next move?
Overestimating Early Success
You need to be bullish to run a business, without that optimism and enthusiasm you won’t get anywhere.
But we have a tendency to overestimate what we can do in a short period of time (and ironically a tendency to underestimate what we can do in a long period!)
If your survival relies on you making big numbers in the first year then think again. You need to structure things so you can survive if things don’t quite go your way for a while.
Hoping you’ll step up to the crease and hit a six on the first bowl is a recipe for disaster.
Failing to Adapt
One for your scale-ups and established businesses here.
The number of times we’ve seen or heard of a successful business that has slowly died a death because of the inability to adapt and embrace change is painful.
We get it, you’ve got a good thing going. It was working, it’s slowing a bit but it’s only temporary… right?
Whilst that might be the case sometimes you need to take a long hard look at the situation and make a difficult but necessary decision. “It’s time for us to change.”
Whether that’s because of shifts in consumer trends, technology or legislation, successful businesses that thrive know how to adapt, pivot and make adjustments.
Just think of headline failures like Blockbuster, Kodak, MySpace, Blackberry to name but a few. Each of these was super successful one upon a time, but they failed to innovate, they failed to listen and take off the blinkers and they either folded or became a shadow of there former selves.
Observe your market objectively, where is it heading, what is it doing and how well positioned are you to capitalise.
Business is not easy, but it can be immensely rewarding, both financially and emotionally. The pride you have from creating something of value, that helps others, provides jobs and income for your family is something nothing else can replace.
So keep at it, you will have to make your own mistakes, but learn from others, try and avoid the most common easy pitfalls and you’ll have a fighting chance of beating the odds!
What’s your biggest and harshest(!) lesson in business?