Get the elephant out of the room: How not to fail in business.March 1, 2016 | Markus Schwarzer

ElephantNot all business ventures can be successful.
The reasons for failure are varied.
In New Zealand 7% of incorporated companies go into liquidation.
This excludes companies that just cease trading and there are a lot.

There are 3 key areas that support success.

 

Companies Incorporated in New Zealand
 (Limited companies only)
Company incorporations NZ

 

 

 

 

 

Company Liquidations in New Zealand (Limited companies only)
Company liquidations NZ

 

 

 

 

 

Reasons for failure
1. Lack of Industry Experience and Knowledge
Knowledge in one particular field does not make a business owner automatically a good business manager.

2. Insufficient Start-up Money
The start-up typically consumes more financial resources than anticipated – cost control and effective budgeting are often neglected.

3. Failure to Understand Market and Customers
Lack of obtaining customer feedback. The successful business is dependent on the extent the owner/manager understands the needs of the market segment(s).

4. Poor Employee/Management Skills
The saying goes ‘people are the most important asset’. This is often overlooked and underrated.

5. No or poor Cash-Flow Forecasting
Unfortunately most small and medium sized companies do not use cash flow forecasting.

3 Key areas ensure success

1. Cash Flow
This is arguably the most significant success factor for any company. Very applicable to smaller and medium sized companies. Whether start-up or expansion phase, the old saying ‘Cash is King’ is as valid as ever.
Cash-flow forecasting
I am a strong believer in a rolling 12 months cash flow forecast. Perhaps even 18-24 months. And I still have a preference using the old Excel spreadsheet method.
Why?
Because it forces one to think and manually enter every possible future transaction: revenue, expense, tax.

2. Process Review
This goes hand-in-hand with a robust cash-flow forecast. A systematic internal activity/process analysis and review is Must-Do.
How to?
The challenge for owner/managers is to allow (quality) time to review and fine tune processes.
Best to use flow diagrams and keep testing assumptions.
There are a number of (software) tools available that track processes, however I find the old whiteboard and coloured pens are great to get started.

3. Share the data
It is not always easy for business owners & managers to share data, particularly financial data. It does require a little trust in your staff – but the benefits are worthwhile.
Why ?
The more your staff/team understands the bigger picture the better. The more people own the data the greater the motivation. It may require some training to get everyone up to speed.
I have seen huge turnarounds in motivation to support a company’s direction.
I have seen people with relatively little formal education exploding into action to support and drive the business forward.

Do the 3 key areas really ensure success?
Yep, It certainly will go a long way to align all the internal factors. Cash flow forecasting, process analysis and staff involvement provide an platform to put the business in a sound position.
However, it is not a miracle cure. It remains vitally important is to understand customers and markets.
And business owners need to be able (and prepared to) to delegate some tasks.
As the saying goes:
“Jack of all trades, master of none, though oftentimes better than master of one.”

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