How many businesses fail?
According to the Office for National Statistics, one third of all businesses in the UK will fail within the first three years. Other estimates put this figure even higher. It may be thought that, now that the recession is over and that the UK economy is, at last, expanding, business failures will decline. In fact, experience of past recessions shows that the rate of business failure increases in the period following a recession. So, why do businesses fail to such a large extent?
There are many reasons for the failure of businesses and in truth there are usually a number of reasons why a business fails. However, in truth, the failure of a business is usually down to a small number of key areas. Of these, the ones that we consider the most significant are:
- The lack of a viable business plan;
- The absence of adequate financial controls;
- The lack of effective marketing.
A failure to plan is a plan to fail!
There is an old adage: a failure to plan is a plan to fail. Never has a statement been so true, yet a very high proportion of businesses do not produce a business plan, let alone a viable one. Others produce a plan to obtain finance and then forget it one it has been secured.
All businesses need to know what their ultimate goal is and how they are going to get there. Without such a plan the business is just like a rudderless ship in a storm. At best it will drift along being mediocre at worst it will fail.
Know where you are!
In the previous paragraph we dealt with the direction that the business is travelling. Now we are dealing with where the business is now.
Too many small businesses have little or no idea of how they are doing. They keep little or no accounting records, they do not know what they are owed or what they owe. They do not raise invoices for the products or services they supply on a systematic basis and there is no or in-affective credit control. It is no wonder, then, that such a high level of business start-ups fail.
Do you know where you are going?
Without adequate accounting records and financial controls in place, a business cannot function. Apart from falling foul of the tax authorities, any decisions that are made regarding the investment of time or money are not based on sound numbers.
The accounting records need not be sophisticated, for a small business often a well-designed spreadsheet is adequate, although there are now very many proprietary accounting packages that are available for little cost and which will help the business owner, with the right disciplines in place, control his business.
Who knows about you?
You may have the best product or services in the world, but if nobody knows about you, your business is likely to fail.
It is important that, as part of your business plan, you have a robust marketing plan. This should define who your targeted customer is and how you are going to reach those customers. Your marketing plan should be multi stranded, i.e. you should not rely on just one marketing medium to get you message out there. Also, you need to track what is working and what is not.
I am sure that none of the above applies to your business. But, in any case, you don’t want to be mediocre let alone fail, so make sure that you set aside time when you can work on your business and put the fundamentals in place.