Why Businesses Fail

Did you know that 97% of all businesses here in Australia are small businesses? And did you also know that over 67% of small business owners don’t make it through to survive their first 5 years?

Running a business is not for the faint of heart. Entrepreneurship is undeniably risky. While there are a number of small businesses that perform well and are continuously profitable, a larger portion of businesses fail without the proper tools in place to achieve critical business objectives. So many small businesses are on an inevitable path to failure.

Here are four reasons why small businesses fail:

  1. Not making enough sales – A large number of businesses fail because they are over-reliant on a very small number of clients. It takes just one unexpected closure to result in a significant fall to rocky financial. Short-term future earnings can be massively reduced, and invoices for completed work can go unpaid. While maintaining caution about spreading yourself too thin, you should try not to rely on a very small client base. If you deal with a very few clients, or if a small number make up the bulk of your turnover, you should begin scouting for new prospects.

2. Expenses are too high – Just as good cash flow keeps a business afloat, poor cash flow can sink it. If your bills exceed cash on hand, you’ve got a cash flow problem. Cash flow can also shift dramatically depending on the time of year, or even by day of the week. What makes it even more challenging is that cash is most needed when your business is growing. A strict handle on cash flow helps insulate your business during struggles, downturns, or unpredictability, and also allows more flexibility during growth periods.

3. Record keeping – As a small business owner, you understand your business’ processes inside and out. You probably lose sleep at night worrying about your sales. You’re passionate about your business succeeding, and you’ve invested your life’s work into it. But, there are metrics that small business owners often overlook and fail to record and track effectively, which ultimately hinders them from making strategic plans thus preventing them to succeed in their businesses.

4. Strategic management – A 2011-12 report by the Australian Securities and Investments Commission (ASIC) found that 44 percent suffered poor strategic management. This is another common reason why small businesses fail. For a small business to grow and succeed, it needs a good strategy and a plan to support it. As an entrepreneur, don’t make the mistake of excessive idealism concerning your business, don’t be so focused on your vision for the business that you forget or neglect creating a strategic plan that factors in important components of your business and addresses them adequately.

Having a clear understanding of exactly what we are dealing with here in our small business journey is half the battle. It is vital that we keep the passion we have for our small business in check with the realities of our very survival. Developing a clear plan to address each of these four areas in our small business is the only way that we will earn our right to be on the positive side of the statistics, growing and expanding beyond our humble beginnings to the larger operation we always imagined.

Your Business Baby

Many of us who are business owners have also been parents, nurturing our newborn from the moment they take their first breath, then supporting them for as long as we can through to adult maturity. Our work in growing our small business is very much like the journey we take with raising our children. From the early stages of conception through to the powerful strides of maturity, our businesses depend on us to craft a safe pathway for expansion through to the fulfillment of the their potential.

“Growth is the only evidence of life.” John Henry Newman, Leader of the Oxford Movement, Catholic Cardinal

Newborn

The birth of our business is like the birth of our bouncing first baby. With delight we watch this bundle of joy draw its first breath and we are filled with blissful, naive wonder. Yes, it is a living thing, but no, it cannot function at all on its own. The business name is registered, the logo designed, domain bought, and business cards printed, but this brand new business does nothing without our involvement. Every single part of this life must be nurtured, nourished, supervised and attended to. This newborn business relies totally on us providing everything it needs to survive this highly vulnerable stage. We work around the clock to sustain the business, and it is so young that it is nowhere near able to sustain us. This is our calling. This is our mission. We intend to give it our all.

Infancy

From first days of our baby business being born we work hard to provide the nourishment that the business needs to grow. We develop our pricing plan, business offerings, sales and marketing strategy, and our oh-so-necessary social media profiles. In these first months it is vital we invest heavily into developing the structures that will sustain the business as it grows. There was a time when you didn’t know what you didn’t know, but now the writing is clearly on the wall.

As you gain more clients you will need more efficient systems of customer service to deliver your offering, earn client referrals and testimonials, and have them coming back for more. Increased trade will have you performing more transactions so you will have to develop effective record keeping strategies and gather business data to track your performance. And as you encounter increasing administration needs you must establish routines which keep work flowing productively and without bottlenecks. You will need to take great care that your business growth does not push your expenses beyond what you can afford, or you will face the heartbreaking demise of your business before you ever really began.

At this point the bubble has burst and you start to question that commitment you made to give it your all. But still, you press on. This is your passion.

Childhood

If you have done the work of building your early business systems your bundle of joy will continue to grow and expand. It is a relief to see that things aren’t quite so desperate as they were before. You might even squeal in excited amazement as you watch your business take its first steps towards independence. The first automated sale. The first staff member. The first repeat customer. The first profitable year. The first real weekend off! These first years in business can go as slowly or as quickly as you can plan for. The better the systems, the faster the progress towards maturity, and the more your growing business has in it’s backpack to get itself through the day.

Adolescence

With our business continuing to hum along on the strength of our systems we reach a time where life gets easier. The taxi runs of adolescence are not quite as demanding as the infant’s mid-night feeds or early morning teething problems we once faced. But when the adolescent business has a moment, oh boy, do we feel it!

We have come to expect that our business doesn’t need us quite the way it used to, and there is liberty in that for all of us. Your staff know what to do, how to do it, and when they have done it well. Your automations run along as smooth as silk, maintaining your records, facilitating sales, delivering your offering, and boosting your advertising and marketing for you.

And then the adolescent hissy fit hits! Your system crashes. Your staff get sick. Your ads don’t work. Your shop is flooded. You miss your sales targets. Your expenses go up without your say so. And you reel…

And then, you recover. You strengthen your position and give your growing business more of what it needs. New approaches. Responsive wisdom. Adult leadership. You nurture your adolescent business through to maturity.

Adulthood

This journey continues on for years. Each of us have different ideals which guide our business aims. If we’ve done the job of raising our business well, we’ll increasingly see the fulfilment of these pursuits. Our operations will be robust, resilient and responsive to change because we will have developed the people and the systems to sustain this business health. A business that is strong with stability, alive with vitality, and far reaching with its impact will become this because the business owner set out to build the systems that would grow something bigger than themselves.

Would you join me on your own fast track to running this type of business? My mission is to stretch daily beyond my current capacity into driving an operation greater than I am, and to take as many people as I can with me. I can see the mountaintop from here. I can feel the breeze on my skin and the sun shining on my face. It is alive and real in my mind’s eye, and I bring it to fruition every day in my relentless dedication to building systems for growth. I will have a mature business which offers new possibilities for the future for my staff, clients and partners.

Morning Like A Boss

For many small business owners our days are filled with action. Important meetings, pressing deadlines, urgent priorities, and then those surprise situations which push themselves to the top of the list. How we start our day has a massive bearing on how we continue. By creating a productive morning routine as a structure which never changes we can run our mornings on autopilot. This is productivity without the pressure and it has massive positive effects which snowball the benefits into the rest of our business growth.

Now that your eyes are open, make your sun jealous with your burning passion to start the day. Make the sun jealous or stay in bed. -Malak El Halabi

Studies show that our will-power is strongest first thing in the morning. We are more alert, more focussed, more positive and more willing to roll up our sleeves and get stuff done in the morning than we are at any other point of the day. This is the perfect opportunity for the small business owner who needs to make the most of every moment to stay ahead of the curve. I love my mornings. I get so much of my most important routine work done in those first couple of hours of the day. For me, this is the structural maintenance stuff that I need to keep everything humming along while I grow. The basics that must be attended to or else I would land myself in hot water.

I have encountered two horror stories recently in the area of accounting. A business consultant friend of mine told me the first troublesome tale. They were working with the owner of a big company without routine processes to maintain their accounting which landed them with a Xero account that was bursting at the seams. Over 2000 unreconciled transactions which needed to have accounts set up, reconciled and invoices matched. It was a management disaster that took them months of unproductive time to sort out, and some additional headaches with the ATO.

The second sad story came from a client of mine who needed help with organising her business accounting. I sat speechless as she showed me through three years worth of start up business transactions spread over three different bank accounts, with two of them mixing personal transactions in with her business ones. I helped her create a basic structure for her chart of accounts and advised her to make the management of her accounting part of her daily routine. I then sent her off to her accountant to square away the items I’m not qualified to help with. She had a massive admin task on her hands, and again the stress was multiplied with the ATO chasing her up for overdue returns.

Now I am no accounting expert and I lean heavily into the support of my accountant for the management of my taxes. But I am the only one who can be responsible for managing my daily business transactions and maintaining accurate, up to date business records. We must start out as we aim to continue. There are ongoing business admin tasks that can quickly become chaos if they are not managed regularly, but I have found that there are plenty of jobs which disappear to almost nothing like fairy floss dissolving in your mouth if you do them daily.

I know plenty of people who rave about the benefits of self care time in the mornings. Yoga, meditation, work out, reflections and gratitudes are high on the list of “Great Ways To Start Your Day” for lots of business gurus. I agree these things are a priority, but I personally start my day on my phone, flicking through several apps to manage my accounting, social media, emails and team members. My morning routine goes like this:

  1. Open my calendar to review what I have scheduled for the day
  2. Hootsuite on my phone to push scheduled content through to Instagram
  3. Open Xero on my phone to reconcile transactions from the day before
  4. Open Facebook, LinkedIn and Instagram on my phone to check and respond to Social Media notifications
  5. Open GMail on my phone to take a quick scan of anything urgent I should attend to when I first sit at my desk
  6. Open Meetup on my phone to check event notifications and messages from members
  7. Open Slack on my phone to check in with my team
  8. Then, I go outside for a run or some yoga, or head to the gym
  9. Make a delicious healthy breakfast that will see me through to the afternoon, if not all the way to dinner
  10. Open my computer and get into emails. I was in there the day before so there’s no build up

This routine literally takes me about three hours, and sets me up to manage the tasks which build up to overwhelm if we don’t stay on top of them. My assistants have very clear Routine Documents which spell out exactly how they are to start every day too, and then each of their routine items are scheduled in RTMS, our business process software. Nothing is missed, payments are never late, tasks never get out of control, people are contacted regularly, and all is well with the world.

You can set up your perfect morning too by following these three steps … And if you do number four, you will be able to delegate some of your morning work to really get some momentum going:

  1. LIST the routine things you need to do on a daily basis to keep on top of them
  2. SCHEDULE that list for every work morning
  3. TIME the list: how long does it take you to cover your basics? This is how long you need for your Morning Routine
  4. DOCUMENT how to do each step of the items in your morning routine that need to be done but not necessarily by you