posted on February 11, 2009 10:42
WHY SOME BUSINESSES SUCCEED AND OTHERS DON'T
According to the US Department of Commerce, more than 750,000 new businesses start up every year. Unfortunately, 80% of those businesses will fail within the first 5 years. Of the 20% that do succeed, 80% of that group will also fail within the next 5 years.
That means out of the 750,000 new entrepreneurs that start this year, only 150,000 will make it past five years. By the year 2019, only 30,000 will have survived. Because of the direct affect it has on tax revenue, the US Department of Commerce wanted to know why the failure rate is so high.
As they conducted a thorough review and a great deal of research, they concluded that 3 main factors were among the most common reasons for business failures:
1. Poor Financial Planning
2. Poor Sales & Marketing Skills
3. Poor Business Systems
Poor Financial Planning
Failing companies typically have incomplete accounting systems, poor credit policies or non-existent ones, and overly optimistic or unrealistic outlooks about the future.
Financial planning is one of the primary keys to unlocking a business’s success. Successful companies first establish an exit strategy in order to more realistically plan for the future. You can’t plan for a vacation if you don’t know where you’re going or how you’re going to get there. An exit strategy is used as a compass to guide you toward your goals. Additionally, by working with a variety of advisors, you will be able to arrive at your final destination faster.
Understanding accounting information is critical to the success of each business. Company owners, who are trained to fully understand the numbers to make daily decisions, will increase the speed and frequency by which those decisions are made, resulting in better controls and increased financial reserves. Therefore, it is important that your accounting is accurate and up-to-date before an exit strategy can be built. Your accounting systems is used to meet strategic daily goals of the exit strategy.
Poor Sales & Marketing Skills
How many times have sales people approached you and rambled on and on about their products and services? Or, how many times have they constantly interrupted you to tell you how they can “fix” any problem you have in relation to the product or service they are trying to sell? Frustrating isn’t it?
Successful people don’t talk as much as they listen. This is another key to financial success. They typically ask questions to find out what customers want, need, and value most. Your customers and clients will always under-value the products and services you provide if you don’t first align your values with theirs. Is it any wonder why some people consistently fail while others succeed? Remember, products and services don’t sale themselves, people do.
When marketing to your customers, keep your focus on what their needs are. Take the time to listen; you may be surprised what you can learn from them. When you know what your customers are genuinely in the market for, you can then build an advertising campaign to match their desires.
Poor Business Systems
Are you communicating with each department? Is each department communicating with each other? Are you working with each department to develop more efficient business systems both internally and externally? If not, your business will probably fail miserably.
You can increase profits substantially by communicating with your Sales & Marketing, Production, and Accounting departments on a regular basis, and by having them communicate with each other.
For example, your sales and marketing department should be telling the other departments what the customers are saying about your products and services—this allows the production department to create new products or services that will meet the needs of your customers.
Inadequate pricing and bad credit policies are another example of poor business systems. Do you check their credit or have established policies for extending credit to customers to avoid bad debt? Are you making it easy for your customers to pay for your products or services without putting the company at risk? How are you managing account receivables collections, cash flow, and percentages? Are your products and services priced properly to cover overhead costs?
The key to having successful business systems is to have a Cycle of Service for each. Cycles of Service increase overall profits, customer retention, and employee retention. Examples of cycles of service are: phone systems, customer service, employee responsibilities, delegating, managing, marketing, and performance tracking.
As business systems are implemented, measured, and controlled your chances of succeeding will improve dramatically.