|Small Business Information|
The Business Autopsy: A Fact Of Life
Last week we discussed the importance of performing an autopsy on a dead business. No, I haven't been watching too many of those wonderfully graphic, TV forensic investigation shows. The reason I recommend you do a business autopsy is to uncover the exact reasons why the business died. This is valuable information that can not only heal feelings of personal failure, but also better prepare you for the pitfalls of business should you ever take the plunge again.
Starting a business is never easy and the odds of your success or failure are about even money. The fact is, approximately half of all small businesses fail within the first four years. And a large percentage of those failures occur within the first year. These are the statistics that keep many entrepreneurs awake at night. Like Sisyphus, always pushing that boulder to the top of the hill only to have it tumble back to the bottom each time, you never know when you're going to lose your grip on your business and have it tumble back over you.
OK, so far in this column I have managed to squeeze in references to modern American television and ancient Greek mythology. Enough highbrow beating around the bush. Perform the autopsy and learn from it. Only by knowing the real reasons your business died can you identify and hopefully stave off those maladies before they take you down next time, if there is a next time. And if you're a true entrepreneur there will be a next time, trust me on this.
There are many reasons why businesses fail, but according to a recent survey by U.S. Bank, the majority of business failures can be attributed to three reasons: bad management, bad financial planning, and bad marketing.
Bad management comes in many forms. The survey showed that seventy-eight percent of the business failures examined were due in part to the lack of a well-developed business plan and a business owner who had no business being in the business he was in. In other words, the business owner did not have an adequate knowledge or a thorough understanding of the business he had chosen to start. This is why software entrepreneurs like me don't start shoe stores. I have feet, I wear shoes. That's not enough to qualify me to go into the shoe business.
Next, seventy-three percent of the business failures in the survey were also manned by owners with rose colored calculators. These business owners over-estimated revenue projections (the number of expected sales) and under-estimated the burn rate (the amount of money required to sustain the business per month).
It gets better. Seventy percent of the failed businesses in the study were led by entrepreneurs who were in denial regarding their own competence, or more to the point, their own incompetence. These business owners either didn't recognize or chose to ignore their own entrepreneurial shortcomings. These entrepreneurs also did not seek assistance from others who might have made up for their inadequacies. It's sometimes hard to ask for help when you are supposed to be the one with all the answers.
Believe me, I know.
The final contributing factor to the death of sixty-three percent of the businesses who died from bad management was that the owners had no relevant or applicable business experience.
Bad financial planning was the second reason sited by the survey as to why most businesses fail. In business, it's always about money. According to the U.S. Bank study, eighty-two percent of the business failures studied reported poor cash flow management as a contributing factor to the death of the business.
Seventy-nine percent of the businesses were inadequately funded, and seventy-seven percent miscalculated the cost of doing business. In other words, they failed to take into account all of the costs involved when setting the price for their products.
Let's move on to my favorite subject: bad marketing. You've heard me preach this sermon before. You can have the greatest product in the world, but if your marketing efforts are inadequate or ineffective you will end up with a warehouse full of the greatest product that no one in the world has ever heard of.
The study showed that bad marketing was a contributing factor in the death of sixty-four percent of the businesses surveyed. Many of these misguided entrepreneurs either minimized the importance of marketing and promotion or ignored it totally.
A vital part of marketing is knowing who your competition is and always knowing what they are up to. The entrepreneur who ignores his competition is a fool (gee, was that too harsh?) and is always destined to fail, as proven by the fifty-five percent of the dead businesses in the survey who either didn't even know who their competition was or simply chose to ignore the competition altogether.
Here's a nice hole in the sand for you, sir.
Please insert your head?
Another mistake made by forty-seven percent of the deceased businesses was that they relied on just one or two customers for the bulk of revenues. This is a common mistake made by many business owners who devote all their energy to one huge client. What they don't seem to understand is that if that one customer goes away, so does most of their revenue.
When performing your business autopsy you might identify other contributing factors that were beyond your control, such as a down economy, the lack of qualified employees, new government regulations that negatively affect the way you must do business, the failure of a strategic partner, etc..
There will always be things you can't control. The key to business success is to keep control of those things you can and do everything you can to prepare for those things you can't.
Next time we'll discuss a few things you should and should not do to help ensure your business success.
Here's to your success.
Small Business Q&A is written by veteran entrepreneur and syndicated columnist, Tim Knox. Tim serves as the president and CEO of three successful technology companies and is the founder of DropshipWholesale.net, an online organization dedicated to the success of online and eBay entrepreneurs.
Self Serve Car Washes in the United States
In the 2003 Auto Laundry News Survey it was determined that only 10% of the Coin-op Car Washes had a web site. So if you are doing lots of individual research on car washes that are self serve, do not expect to find a lot of data on the Internet. Owners of coin-op car washes say that only 76% have internet access. The average population is 64% in the US. Not much better, so this low tech sector of the Industry seems to remain un Tech. Only 15% of coin-ops surveyed took credit cards for tokens, machines or even concession machines. Of which 17% only claimed to have concession machines, which most feel are 1/3 of their income if they had them. Only 4% had drinking water fountains. 13% had added an in bay automatic in the last five years. 51% had more than one location.
(P)Refer to Grow Your Business
(Although this article is geared towards small business owners, the information is just as applicable to a similar personal situation, only the action is slightly different.)
Write An Effective Job Proposal
I am simply amazed at the problems some of my colleagues are experiencing regarding writing job proposals for customers. So often I hear that there has been some sort of disagreement between client and service provider, something that can and should be avoided before a project is started. Here are four tips to help you write an effective job proposal letter.
How to Profit from a Concrete Roof Tile Business
Concrete Roof Tile Business: During the 2004 summer season, storms plagued the United States. Damages from the Hurricanes in Florida alone sent resources in the southern states scrambling. The shortage of qualified roofing professionals and supplies were felt immediately. Roofers from all over the United States began hunting down supplies and heading south. There were also many people who saw a roofing business opportunity and invested in roof tile businesses.
Five Facts and One Motivating Factor Behind a Successful Home Business
All legitimate home business entrepreneurs insist and announce loud and clear that a successful home business is not about an overnight thing. And that you cannot get rich overnight and so on...
How to Give FREE Advice and Make Money
When is advice free and when should you charge for it?
Cleaning Service Stations with a Pressure Washer
Fuel prices these days are quite high and they take their toll on a service business. It is time to strike back. If you own a cleaning business that uses pressure washers why not clean service stations and get some of your money back as you pay $2.30 per gallon for fuel? Gas Stations are usually franchises and have cleanliness commitments as part of their franchise agreements with the oil companies they sign on with. This means they have no choice they must keep their gasoline stations spiffy. Currently with unemployment rates so low 5% on average many stations do not have the extra labor needed to keep up with the cleaning.
ADH Will Make Your Life More Productive & Your Life More Profitable
What is a Virtual Assistant?
Web Based CRM Systems: Get Mobile; Get Results
Everyday more web based companies enter the business scene. The low initial investment, potentially high revenue, and convenience of owning and operating a business from your home PC or laptop is enticing an ever-increasing number of entrepreneurs to try their hand at e-business. Unfortunately, most of these would-be companies disappear shortly after their initial market entry.
Pet Grooming Business
Do you like animals? Would you like to work for yourself? Pet grooming could be the career for you.
Marketing Your Small Business - The Top 10 Brilliant Ideas
A Brilliant Marketing Idea... sounds great but what is it? Is it the idea that results in the mailman ringing your doorbell, signaling in a caravan of postal workers with mounds of letters (all in response to your latest advertisement)? Is it the idea that brings a 20% response rate on your direct mail campaign?
Hispanic Small Business Advantage
One thing I have noticed in my travels to different markets is that Hispanic Small Business Owners have a very distinct advantage. They are friendly and very involved in their communities. Hispanic Business Men and Women are very socially active and if you look at their incredible unity, there is nothing slowing down this Hispanic Middle class from becoming upper classmen. They are incredible relationship builders and smart and savvy business people. Just look at the number of organizations propelling their simultaneous hard work ethics:
Passion Is Key To A Successful Business
Passion. Passion alone can make your business successful. As an entrepreneur, you are a passionate person. For why would anyone invest such incredible amounts of time and energy on something they have no REAL desire to do? If you do such a thing, then it's just bullshit. You have built an unreal, superficial way work environment and based on that you most likely are not very satisfied in what you do.
Reaping the Rewards of Cost Cutting
In these days of insecurity and uncertain futures, the tendency is to manage for survival but the smart business leaders are actively hunting for profits.
Business Failure, The 8 Traps Causing Failure And The One Attribute Which Ensures Business Survival
It is estimated that 78% of all small business start-ups fail within the first twelve months years, and long-term survival is likely for only 22% of all new business start-ups.
Small Business - Is The Accounting Profession Ripping Them Off?
My 16 year-old daughter said, "Gee Dad! You look just like an accountant" And she wasn't being complimentary. Accountants are perceived to be boring, stodgy and conservative. Over the years we've been the butt of many jokes. I've heard them all. Why did the accountant cross the road? Because he looked up the file and that's what they did last year! Ha Ha! What do accountants use as a contraceptive? Their personality! Ha Ha!" Why do accountants become accountants? They don't have the charisma to be undertakers! Ha Ha! What do they call an accountant at the bottom of the sea? A bloody good start! Ha Ha! I think I am the exception. That's why I've begun to call myself a business strategist and counselor. "You're still an accountant," says teenage daughter. I am still an accountant and I'm still as passionate about it as the day I started. Because accountants have an impact on people's lives. The advice we give changes people's businesses which in turn changes their lives. I'm excited in my role of accountant. Accounting is not stodgy. Accounting is exciting. Accounting is cool! My ambition is to become the "cool dude of accounting". (do they still say "dude", do they still say "cool". Remember that song: When I say, "cool, man, cool, I don't mean cool, man, cool, I mean you leave me cold, Jack") We were throwing some ideas around with some of our clients as we do from time to time, looking for that unique benefit that our firm gives to our clients. That unique something that distinguishes us from other accounting practices. One said, "You have helped me to improve my business. Not only am I making more profits and have more to spend, but I also have more time to spend away from the business. The more time I spend at home with my family the happier my life is. And the happier I am the happier my wife and children seem to be. When my wife is happy all sorts of good things happen ? even our sex life improves. That's it! You can advertise that using Kelvyn Peters CPA and Associates improves your sex life" I don't think so! Sorry, we haven't accepted his idea. You're completely on your own in that department, but we can help you improve your business and consequently your life. And your goal might not be extra profit but extra time for living! We know we can because we are doing it for others. We repeat ourselves so often because the truth is the truth and there is only a limited number of ways to tell it. You've heard this before. If you are spending every waking moment in a hassle about your business, there must be a better way. There is! Accountants have been ripping off their clients for years In 1973 I attended a workshop for accountants at the Finance Management Research Center then headed by Dr Keith Cleland. The workshop was intended to drag participants into the 20th century. "Accountants have been ripping off their clients for years", he told us. The 25 participants were shocked. These represented vibrant accounting firms from all around Australia, both large firms and small. They were at the cutting edge of the industry. Otherwise they would not have been at this kind of workshop. To a person they resented that comment and one fellow wanted to punch him on the nose. (It wasn't me, but I would have held his coat). By the week's end we discovered how we were charging high fees for things that our clients couldn't understand, couldn't use and didn't need. At the same time we were neglecting the information that they did need to increase their profits and safeguard their businesses. 20 Years Later what's Changed? I attended a week long seminar hosted by CPA Australia in 1993 which was to train us in "client based accounting". Dr Cleland presented the initial module. He did not openly criticize accountants this time, after all, it was the CPA's hosting it, but he gave almost the same speech (same jokes, too) as he had 20 years before. "These things aren't taught in Universities", he said, "so the accounting profession has mostly ignored them. They have let small business down but things are changing". Know-it-all, Kelvyn Peters had to jump to his feet and say that the doctor had said exactly the same thing 20 years ago. Where were the signs of change? Universities were still not teaching accountants how to help their clients. "This seminar with CPA Australia and the suggestion they might make client based accounting a speciality is a good sign", he replied. 10 Years Later? Nothing has changed. Our hopes have withered on the vine and small business must look elsewhere for help. Recently I was called in to assist an ailing restaurant. We were happy to work with their existing accountant. We'd rather do the fun stuff and let the accountant do the boring tax returns and compliance work. In this case the client insisted we take over the whole of the accounting function. The accountant was most unhappy. "They are difficult clients", he said, "I have kept the fee lower than it should be and I have done extra to help them". Indeed, he had! The financial statements were beautiful to behold with colored graphs and key ratios compared against industry average. (most accountants still don't do that. I had advised that both wages costs and cost of foodstuffs were too high. Our focus was to form tactics to reduce them. "But I had already told them that", said the Accountant, "what do they need you for?' I told him that the client knew the kitchen wages were too high and what he wanted was for someone to show them how to reduce the wages in the kitchen. "I can't do that", he said, "I'm an accountant". I would have to camp down there in the restaurant to see what's going on. And they wouldn't pay the fee". Yes they would. They were going to pay me. Most accountants see their role as being the provider of financial statements, cash-flow projections and tax returns, and there's the rub. Each of these is a tool not an end in itself. It's like giving the client a hammer and saw and telling him to go build a house. He needs more than the tools, he needs to be shown how to use them. Of course the client will complain about fees whatever the level if all he receives are not useful to him. Accountants generally are flat out preparing financial statements and tax returns. Meeting dead-lines. They haven't the time to 'smell the roses'. Anything that doesn't help meet a dead-line has to wait until later. Often its too late. I may still look like an accountant, even the cool dude of accounting, but there is nothing I like more than talking with a business owner about his business. There's nothing a business owner likes more than discussing his business and planning to make more money. It's great fun and he loves to pay me for it.
How To Create A Business Note That Is More Attractive To A Note Investor
You are selling your small business (business value under $1 million for this article). You would like the buyer of your business to come in with an all-cash offer, or be able to qualify for an SBA guaranteed loan. However, in many cases the owner of the business ends up taking back the financing because the buyer is not able to make an all-cash offer or does not qualify for an SBA guaranteed loan. So you create a "business note" and you now become the "bank". At first that may seem okay, but after a couple of years of receiving payments you may decide you want to get back into business and you need the cash that is tied up in your business note on which you are receiving payments. So now you want to sell your business note to raise cash for your next business venture. What is it worth? That will depend a lot on how you structured the note.
Top 7 Small Business Tax Tips
Here are seven ways for owners of small businesses to save money on their taxes.
Making Your Purpose Your Business Step #2- Getting From Point A to Point B
In my previous article, Step 1, your challenge for the month was to research where your passion lies. Based on your research you might have discovered that self investigation can lead us to two places; either we find out our answer or we realize we need to ask more questions to get that answer.
11 MONSTROUS Small Business Marketing Mistakes and How To Avoid Them
Increase your profit potential by identifying ? and avoiding ? these 11 marketing mistakes.
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