Not 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.
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.
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.
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.
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.
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.”