(Originally posted on July 29, 2015)

 

Common Business Killers

It is common knowledge that 85% of new business start ups fail within their first 5 years; 90% within the first 10 years. There are a number of ‘common business killers’, when overlooked, these items may lead to the demise of your business:

Lack of Planning: Every new business owner tends to react to each situation or set of circumstances as they arise, without the advantage of a plan, the business owner will jump from crisis to crisis without control or consistency, causing undue stress and teaching employees to operate in the same reactionary form.

A plan should be designed to increase the chances of success, while reducing the likelihood of failure. The plan should take into account the ‘what if’ scenarios and indicate a response to the problem and an efficient and reasonable solution, essentially indicating the competitive advantage of the business thorough differentiation and values.

 Inaccurate Financial Information: When a business does not have accurate and timely financial information, it is next to impossible to make sound business decisions based upon facts. Without the benefit of accurate information, a business owner will be unaware of the financial impact of their decisions and how their decisions will affect the success or failure of their business. Relying on your ‘gut feeling’ will lead you into a false sense of security and likely towards failure.

Accurate, timely financial information is critical to the success of your business and is developed by analyzing the functions of sales, purchases, receipts, receivables and other critical functions of the business, based upon this information, goals should be set by the business owner, along with reporting mechanisms and procedures to ensure costs are monitored to enhance profitability.

Insufficient Liquid Assets: Business owners often use trust funds (payroll taxes, sales taxes) to cover their operating costs, then scrambling to resolve financial crises when the funds are due to be remitted. Often, this leads to making expedient short-term decisions to the detriment of the business and thereby the odds of long-term survival.

Understanding the true costs associated with operating the business is the first step in gaining control of the finances of the business and is instrumental in determining the level of investment required to make the business successful.

Inability to Measure Employee Productivity: If a company does not have defined employee performance standards or has not quantified the desired results, the company will have a difficult time providing incentives to the employees. A business owner that is not able to accurately measure employee productivity is left to discipline poor work habits based upon visual observations instead of measurable results. The lack of a system of measurement can lead to an upside-down organization whereas the owner will spend more time managing daily crisis situations instead of running the business. This type of structure will lead to poor performance amongst all of the employees.

Incentive programs, perks and bonuses allow management to motivate employees, reward them for productivity, and shift responsibility to lower levels within the business, making the employees accountable for their work and overall performance.

Inability to Identify Company Costs: A business must have systems in place to identify costs associated with operations, otherwise the owner can only make observations to determine how each part of the business is functioning. Without an accurate system in place, the business cannot properly manage sales, margins and operations; usually leading in a decrease in customer service and value provided to clients.

Business owners should identify with critical numbers associated with running the business; revenues, direct sales costs, labour costs, margins, administrative and general expenses. Each business is unique in its structure and management profile, but owners need to follow sound business principles and adapt these to their specific industry, failure to do this will lead to increased frustrations for the business owner.

Business owners need to understand that every decision they make has an impact on their profit potential, to realize maximum profits they need to be diligent in the decisions they make by utilizing the information they have at their disposal.

Contact Your Local Ledgers Professional for a Financial Plan for your Business, and get control of your Cash-Flow!