Tag Archives: Financial Strategy

Why Businesses Fail? – Avoiding common statistics

Ask an Expert, , ,

From our “Ask an Expert” blog – John L. asks –
“You mentioned in your recent article (Why Marketing alone can’t save your business) that a business should focus more attention on fixing common reasons businesses fail before addressing Marketing. What are those issues you are referring to?”

Thank you for the question and reading our blog.  In that article we made the point of when people are searching for a Consultant, the current Google trend is to search for one that will get more business in the door opposed to how to fix a failing business.  My interviews with many Small business leaders shows that many owners may feel Top line revenue is the only thing needed to fix an ailing business, when in fact there is often much more to it than that.  Our concern is that people don’t always know what signs to look for or how to judge the strength of their businesses ability to generate revenue other than looking at a Marketing fix.

So what are the top reasons a business fails?  Our company has researched many different sources to find 2 common reasons.  I have presented this concept to MANY Business Bankers, Accounting groups, Accellerators and Chambers, who ALL agree with our approach.

The Top 2 reasons Business FAIL are:

  1.  Lack of Education – Business Acumen & Experience
  2.  Lack of Timely or Appropriate Funding
 Business Acumen is a combination of a variety of skills, experience, decision making and planning ability.  Many people have a specific expertise which may be enough to start a business, but other skills are needed to build a successful business and this creates a skills gap.  Not gaining or hiring for those skills can leave a gap in Business operations, which over time devalues a business.
Appropriate funding refers to funding at different phases of business growth.  Start up funds, seeking capital growth funds or credit line at appropriate times, and managing Revenue capabilities (or cost controls) that maintain budgeted margins.

Some common statistics –

50% of Small Business fail the First year

65% of Small Business fails within 3 years

~80% of Small Business fails with in 5 years

of those

 

80% of Start ups fail due to lack of Management Knowledge and skills

* SBA,D&B,US Census, Inc Magazine

 

92% of Small Business fails due to poor

Management Acumen

                    * Dunn & Bradstreet

Failure is 2X more likely due to Quality of Management than due to External Factors

                                                          *National Bankruptcy Annual Reports

90% of FAILED Business is due to lack of Quality Management.

of these:

48% classified as incompetence

42% classified as inexperienced

                                                                        *IMC (International Management Consultants)

These are pretty sobering statistics and speak to the point my business continually addresses which is;  there are multiple areas to build upon to strengthen and grow a business.  There is a growing need for people capable of Holistically Assessing and Planning.  Where does a business person start when they want to look at their own business you ask?  Start with these common traits we have found that support the 2 Most common reasons listed above.

Reasons a New Business FAILS

  • Lack of understanding the effort needed
  • Inadequate financing
  • Lack of planning
  • Unrealistic expectations of success & salary
  • Inability to commit
  • Unwillingness to take responsibility

A key problem for Start Up Business is that they don’t know what they don’t know.  Seeking the advice of people that can both Mentor & Lead them and their plan development helps significantly .

 

Reasons Existing Business FAILS

  • Poor cash flow management
  • Seek funding too late
  • Absence of Performance Monitoring
  • Lack of target Audience research
  • Poor inventory management
  • Failure to identify your own Strengths Weaknesses (SWOT)
  • Insufficient professional resources

Anyone who has run an Organization (Profit or Non Profit) knows how many hats you have to wear.  There are so many obstacles that come up, you become seasoned in researching and solving your own problems.  The difference between a Pass or FAIL here we have found is often a combination of 3 things.

  1. Over confidence in your own assessment capabilities
  2. Misinformation
  3. Closed mindedness

 

In post mortem interviews with owners or Executive Directors, a common response is “I should have this, or I should have that”.  Retrospection shows the same 3 conclusions listed above.  There are many other complicating issues and each case is unique, but if you are in a position where you need to do something (and quickly) to “turn things around”,  I suggest looking (in addition to Marketing) at these issues to insure you can make the most of your revenue.

Last thought – If you are just looking to increase your profit line by a few points, improving internal efficiency can add as much to your profit line as adding to your Top line revenue.

To learn more about our unique Assessment and Efficiency Services  ContactUs-Gray-Primary-16

Carpe diem!

 

 

179 tips to help Cash Flow

Conversations with a Consultant, Operations, ,

Here is a tip that may help your personal and Business Cash flow.  In 2015 there was an Act passed in Congress called PATH. This $622 Billion dollar tax cut has nearly 100 different provisions to help a wide variety of tax payers.

  • the Protecting Americans from Tax Hikes Act

The essence of this act was to help keep more cash in the pockets(or Bank accounts) of Small & Medium sized Business Entities(SME’s) and the average citizen.  An SME’s  is a business of less than 500 employee’s.  What you may want to speak to your Tax professional  specifically about what is called,

Tax code 179

Tax code 179 is about buying or leasing equipment for your business that may be deducted rather than depreciated.  Depending on the expense, it may let you only deduct a % of the expense, but it will still help you keep the cash in your business. This is different from prior years and I have an example below of how to capitalize on this.

There is a list of approved items this code helps and of course there is an additional tax form that needs to filed.  But it may be worth looking into depending what your expenses were in 2015.  Using a one time deduction rather than depreciating these expenses may bring money back that you can use in your cash flow.

Here is a quick look at some of the items this code includes;
–Computers and Software
-Office Equipment and Fixtures
-Large Business Equipment and Machines
-Business Vehicles
-Single-Purpose Structures
-Manufacturing Tools
Informational links-

http://www.section179.org/simplifying_section_179.html

A really nice overview pdf created Wolters Kluwer – https://www.bdo.com/getattachment/2ccf64fd-5806-452d-a27b-d976cf8f146a/attachment.aspx

Click here for more information about Cash Flow from C.S.Simons Consulting
Form 4562 is needed for the deduction-

http://www.section179.org/Form_4562_for_2015_Section_179.pdf

 

A quick illustration, thanks to Crest Capital of how this may help you;

...

 

Carpe diem!

Low Earnings / Low Profits? What to DO?

Conversations with a Consultant, Operations, , , ,

Stop – Breathe – Plan

Financial Earnings have been reported lower for 8 quarters in a row for the S&P 500(source). Many economists are weary of another recession even though there are some positive signs.  But at the very least Janet Yellens recent announcement of a “mixed picture” ahead speaks to a challenging 2016 and most Financial Advisors are warning of a volatile year.   Large companies are having to do more with less to maintain their budgeted profit lines and meet earnings projections.

Because of this, Big Business has….

  • less overall revenue
  • less people to do the work
  • less quality
  • less R&D
  • less room for error
  • less money to reinvest in smaller businesses

 

Wall street has had to make changes because they need to keep investors satisfied,..

..but Main Street USA needs to do this to stay open!

It is one thing to look at efficiency to help shave money off production or operating costs, but making adjustments due to drastic loss of Top line revenue or disintegrating Market channels is a different problem that will effect the future of your business.

Sound familiar?

There is no difference between what the larger companies are experiencing verses small businesses or Non Profits.  It is simply a matter of scale, everybody has to do more with less while maintaining stakeholders.  Everybody is concerned how these changes will be noticed by their customer base or how it will effect loyalty and future revenues.

But in order to keep things moving, something has to change!

This is not a preferred business strategy, it is a reaction to the economic situation most industries are experiencing.  Large companies arguably have more “fat” to trim when necessary but small companies like “mom and pops” or even Non profits run lean as possible anyways.

To compete with this environment companies are continually searching for ways to maintain quality, customer counts and funding.

Here are 5 Key Differentiators in a business handling this well.
  1. Proactive Strategic Planning.  Too often smaller companies view this as “Crisis” management that happens after the fact rather than as a precautionary planning tool.
  2. Getting a “fresh eyes” mindset to business operations, utilizing efficiency experts, workforce development, and sometimes even a “blow it up” mentality.  If you can’t afford outside help, then utilize analysis tools like a SWOT or PEST to help with direction.
  3. Courageous Leadership.  Do the decision makers have the courage to take calculated risks with business operations or market shifts.  This is scary stuff, but once there is enough data, you need to make a decision.  Make sure you have the right data or input from a reputable source.
  4. Understanding CHANGE Management.  Once you have started something, a change will come, but is it the one you want?  Knowing how to control Change and calculate outcomes takes a proven formula and a savvy leader.  Contact me for segments of my white paper entitled “5 Pillars of Change Management” it will define the key components needed to control Change in your organization.  LearnMore-Light-Primary-16
  5. Having Business Intelligence about your customers/doners/followers.   Savvy companies know who is buying their products and what it takes to get them to buy. Knowing the Attitudes & Motivators is key business intelligence that makes for a much more targeted decision about your audience.  Too often a business focuses on who they want to buy rather than who IS buying their product(s).

Avoid being in a position to make decisions that will hurt your business, its customers and your employees because of lower earnings.  If you feel you need help, call an expert.  You have worked too hard to have to cut what is important.

Stop – Breathe – Plan – Call

Carpe diem!