Small Business Failure

1. Lack of Planning ...

Before actually starting in business, any business, the more planning that is done, the better the chance of building a successful long term business.

All pre-planning should revolve around creating a comprehensive Business Plan for your business.

With a good busines plan in place, you will know where your business should be at any stage in time.

It helps you see where you are going wrong or dropping behind, allowing you to correct mistakes and get back on track.

All your goals should be listed in your business plan and most of your major goals should have a plan ?B? in case things get out of step.

Simply put, in my experience, most small business failures can be traced to a lack of pre-planning or by not following the plan or not adapting the plan in time to save the business.

So spend time on your business plan and review it at least monthly. It is your road map and with good navigation can lead you to business success.

2. Lack of Quality & Customer Service ...

If you don't intend to produce a quality product or provide quality customer service, or if you don't have customer service skills, don't go into business.

Thats it, period

Quality might cost more, but is the only way to sustain and grow a business for the long term.

Plan on quality from day one.

Customers expect that attention be paid to their needs and wants, and in a professional, polite and considerate manner.

If you can?t provide that level of customer service, you will be on track to your very own small business failure.

3. Lack of Money - No Financial Planning ...

We have all seen that new store that opened in our local shopping mall and then closed three months later. There can be numerous reasons for this, but lack of money is probably the major reason for that small businesses failure.

The money simply runs out before the business becomes self sustaining.

In many cases the type of business will determine the amount of money required, before you can expect to ghenerate sufficient income to keep the business afloat.

The corner store can expect to be in profit quickly while the ship builder will take years before turning a profit.

Be sure that you really appreciate and understand this.

In some businesses you can expect to need funds for months or even years before the business makes sufficient profit to cover its costs. Be prepared and plan for this.

In all cases when forecasting your start-up cash requirements, remember that you will always need twice as much as you think you will need. This is a basic principle of business startups.

Another common failing in new business owners is to neglect to differentiate between cash in the bank and profit.

Very basic but often overlooked, either out of ignorance or blindness. If you neglect to pay your suppliers before yourself, you will soon be out of business, and another small business failure is recorded.

Another death knell for business is the personal use of business funds. Unless it is part of your salary, it belongs to the business, never forget it.

With any business, money is needed for both the business and your personal needs. Build this into your business plan, salaries for yourself and any of your family that will be assisting with the start-up.

I have seen business plans that contain no provision for the business founders salary and when asked if the business owner is not worth any reimbursement for all their hard work, reply "Oh, but I will be getting all the profits". What a way to go!

Profits can be long in coming so forecast your costs to include enough money for you to live on. At least that will show you what you need in money to survive the early months or years before you break-even or generate a profit.

So to re-cap ...

• Remember that lack of money has sunk more small businesses than storms have sunk ships.
• Plan your business money needs based on a worst case scenario. With luck you will never need the extra cash, but if you do, you will know where to find it.
• At start up spend on the basics only and don't over-invest in fixed assets. You don't need that solid oak boardroom table and chairs right now.

If you have a business that has potential, then provided you have planned your money requirements realistically, you will succeed.

Most small business failures can usually be traced to money problems, so have your line of credit or overdraft facility in place long before you need it.

4. Business Location - Right Time, Right Idea, Wrong Place...

The location of any small business can be critical to its survival or it can be meaningless. Research your market and be sure you start your small business in the right place.

Where you locate your fast food outlet is critical, your home based internet business can be anywhere.

The best location for any business will depend on the type of business you are planning, as well as the type of customer you will be serving. Your business competition in that area will also affect your decision.

A manufacturing business that transports its products to customers should obviously try and locate in an area of customer concentration, if only to keep the transport costs down.

It should also try and locate so that's convenient to its raw material suppliers, services, etc. You should also bear in mind your employees, their location to the business, transport and safety needs.

If you have customers visiting your business on a regular basis, consider the locality of your business. Will they be happy coming to you, are you convenient to them?

Ultimately always rent or buy in an area that best meet the needs of your customers. Many a small business failure has occurred because location has been neglected or was never considered important.

Any retail business that relies on selling to customers should remember that it must be customer oriented. Before deciding on a locality for your business, consider who are your customers, where do they come from and how wealthy are they? Once you have this information, you should then rent or buy in the best location to fit your customer profile.

For example, if you are aiming to sell up market jewelry, then the best location is the best shopping complex in the best part of town, simple. An 'A' type business should locate at an 'A' class location.

Remember, the better the location, the more customers you can expect, as well as a higher sales value per customer.

Cost of rent is therefore of minor concern, especially if your low rent location leads to your small business failure.

• A service focused business
  requires offices and warehouses and these need to be located correctly. Always aim for the best location you can find if you want to run, and be known to run, a first class business. From lawyer to cleaning service, the location tells the customer what to expect. So even if your business does not require offices in an up market area make sure the actual office is good for the area you are in.
• The potential for expansion
  is also important when deciding where to locate your business premises. Don't lock yourself into a locality with no room for growth. If you are leasing, go for shorter leases with more renewal options than single long leases. Long leases can lock you into a site that is no longer suitable and stifle your business growth.
• Never let higher rents scare you.
  The better the area or the accommodation, the higher the rent, also, the higher and better the customer throughput. A few more customers soon covers higher rents. Think of ways to expand the business to meet the rent, not move to get cheaper rent. Rents only go up because the location warrants the increase. Try and stay in business in good areas, they are good for your business.

Finally, keep it legal. investigate City and State regulations in regard to business location. Violations can get your business closed real quick.

5. Product Range - The One Trick Pony ...

That old saying "Don't put all your eggs in one basket" is as true in business as it is in your personal life.

Many businesses, particularly small start-up ones, tend to have little or no product range, choice of services or depth of customer base.

CUSTOMER NUMBERS ...

It's easy to get locked into one customer; in fact you might have started your business solely to service one customer.

Many small business owners setup because they saw an opportunity to supply an employer. But, a change of management at your single customers business and you could lose your small business.

Small business failure can often be traced to the lack of a broad customer base.

A diverse range of customers make for a safe business, which is not to say you shouldn't take that opportunity to supply an esisting employer; just make sure you find more customers as quickly as possible to secure your business future.

PRODUCT AND SERVICE RANGE ...

Product range is equally as important. Any business that relies on a few products is always more at risk than one with a well diversified product range.

For example, in my own case our manufacturing furniture business at start-up had 10 or so lines, within two years we had 300.

A friend had a large service company that provided cleaning services to government hospitals, an all eggs in one basket situation. He saw the weakness and was soon cleaning airports, schools, conference centers and even private homes.

Both his customer and product range had expanded. This diversity saved him from small business failure on more than one occasion.

10% THE GOLDEN RULE ...

Remember the 10% rule. No one product or customer to exceed 10% of your total business. If your business is not in that position go out, find new customers or develop new products and services. There is safety in numbers.

LOSS PREVENTION ...

It is generally not known that the high cost of theft from businesses can lead to small business failure.

In the USA alone it is estimated that over $40 billion annually is stolen by company employees.

Small businesses must be aware of and plan against such losses and you only have two choices - catch the thief after the theft, or prevent the theft taking place.

Investing in security costs, but is essential, so plan to ...

• Employ Good Staff
• Eliminate temptations
• Install physical security. Alarms and cameras
• Use anti-theft technology such as electronic article surveillance (EAS) tags and other such devices.
• Monitor your employees.