The reality of a business venture failing can be difficult for any entrepreneur to accept. Unfortunately, it is the harsh reality for many an Australian who once dreamed of being his or her own boss. Over 60 per cent of all small and medium enterprises in the country will go belly-up within their first three years of operation; 20 per cent will fail in their first year. To make matters worse, of the businesses who survive those precarious first three years, only 50 per cent will become profitable.
If you are reading this article, you are more than likely feeling the strain. You may be an aspiring business owner looking to insure yourself against any struggles that you may find yourself facing in the future. Alternatively, you may be one who’s been in the game for a while with a business that has either stalled or is currently in a tough spot. Learn about what can get businesses in trouble and how you can turn things around with a strategic planning process by reading on below:
Common Causes of Business Failure
Poor Cash Flow Management
Contrary to popular belief, even the most profitable businesses can still suffer—and stagnate—from poor cash flow.
Cash flow refers to the money that moves in and out of your business monthly. In order to get a business up and make sure it continues to run, you must have a certain amount of cash in reserve. Cash flow can be most difficult to manage when you’re just starting out since all your money is going towards the expenses necessary to launch the business in the first place. Additionally, you may not be receiving sales or paying customers yet.
Cash flow issues can also plague established businesses. As mentioned above, just because your enterprise is turning a profit doesn’t mean that it is immune to poor cash flow management. Problems can present themselves if your business expenditures are too high, you have too many outstanding receivables or any reason that causes you to be short on cash.
These days, simply having a dream isn’t enough to be a good business owner. One needs to possess some business acumen as well as certain management skills to make it in the field. Strong management is so important because it enables a business owner to supervise his or her employees effectively. Management skills are also essential to ensure that other aspects of running the business (handling the finances, hiring new people, or marketing the product or service) are all carried out successfully. Business owners who do not possess these skills may want to look into executive and personal coaching to acquaint themselves with some basic concepts and refine their knowledge.
Lack of a Proper Business Plan
Many business owners underestimate the importance of having a plan in place before they even open. Indeed, it can be one of the biggest mistakes one can make: having no clear vision for the business and its future does not bode well for its longevity, nor its ability to overcome even the simplest challenges.
Saving Your Struggling Business
Identify the Problem(s)
It’s impossible to fix something if you don’t know what’s wrong with it. If the problem is profit, start by following where the money is going. If it’s high employee turnover, conduct an HR audit. Collecting feedback from your customers can also be supremely helpful, especially during times of crisis. Learn the “why,” and you’ll soon be able to formulate countermeasures.
Trim the Fat
Nothing shuts a business down faster than running out of money. To save your enterprise from the brink of catastrophe, it may be necessary to start cutting down on certain costs. That big company party or outing may have to wait until the books are better balanced, for example. You may also want to look into reducing costs for travel, utilities, and other overhead expenses. If that still isn’t enough, you may have to face the difficult decision of reducing work hours for your employees or laying them off entirely as a last resort.
Prioritise and Pay Off Your Obligations
The only way to pull a business out of the red is to pay off what it owes. Start by settling any obligations that will put you out of business if you don’t immediately address them. Compensating your employees should be your number-one priority, followed by the vendors that supply you with the materials that you need for your business. After that, you’ll want to put whatever’s leftover into payables that will result in penalties if you fail to cover them, such as taxes. Next, start getting those late payments under control before moving on to items that are not yet due.
It won’t be easy, and you will encounter obstacles along the way. But with the correct mindset and a bit of resourcefulness, you can get past the roadblocks and set your business back on the right track. Want to get a head start on improving your leadership skills so that you can better prevail over these challenges? Contact Justine Maree Cox now.
Is your business in trouble and need guidance on how to save it? Then get in touch with Justin Maree Cox today.