Small Business | Failure at Any Price

Small Business does not equate to failure.  Small Business is not “Eyes Wide Shut”.  Rather Small Business succeeds when the owner understands the cost of success and the cost of failure.  Failure results because the owner of the Small Business is not willing to pay the necessary price either at the time of start up or during the on-going continuation of the business.  To help understand that cost that you are going to pay here are some reasons for Small Business failure.

So What is Small Business Failure? How can you tell when your business is going to fail, and make corrective action? Business failure is the last stage of an organization’s life cycle. Organizational decline, leading to failure is characterized by inadequate or nonexistent planning and inefficient decision-making. The most common reasons for small business to under perform (low productivity, low profits) or fail (bankrupt, cease being) are as follows:

· Poor cash flow management.

· Absence of performance monitoring.

· Lack of understanding or use of performance monitoring information.

· Poor debtor management. A combination of not paying your debtor on time and not coordinating payments with incoming cash flows.

· Over borrowing. The company is over leveraged and debt is not being reduced.

· Over reliance on a few key customers.

· Poor market research leading to an inaccurate understanding of the target customers wants and needs.

· Lack of financial skills and planning.

· Failure to innovate.

· Poor inventory management.

· Poor communications throughout the organization.

· Failure to recognize your own strengths and weaknesses.

· Trying to go it alone. Trying to do everything yourself and not seeking external help. Whether this external help be as simple as hiring additional staff or going to professional services such as a lawyer, accountant, banker or business coach.

· Younger companies are more likely to go bankrupt because of shortcomings in managerial knowledge and financial management abilities. In contrast, older firms are more likely to fail because of an inability to adapt to environmental change.

· It sounds simple, but the number one reason why businesses succeed or fail is because the business owner did not take the time to conduct a feasibility analysis, market and business plan. Ah, the Business Plan and SWOT Analysis. Why? Sometimes an idea is developed that the business owner thinks is good but no one else does. Sometimes an idea is formulated that the business owner believes is so good that the potential customers will find it themselves. And sometimes the business owner thinks that everyone is a potential customer.

· A clear and consistent finding of prior research is that firms face the highest failure risk when they are young and small. But if there are factors other than the liabilities of newness and smallness that contribute to firm failure, what are they and how can their influence be mitigated? Young failures should be attributable to inadequate resources and capabilities (relative to initial endowments). Older failures should be attributable to a mismatch between resources and capabilities and strategic industry factors.

· The main reason for failure is inexperienced management. Managers of bankrupt firms do not have the experience, knowledge, or vision to run their businesses. Even as the firm’s age and management experience increases, knowledge and vision remain critical deficiencies that contribute to failure. A second key deficiency occurs in the area of financial management. Some 71% of firms fail because of poor financial planning. Three particular problems that arise in this area are an unbalanced capital structure, an inability to manage working capital, and under capitalization.

· In diagnosing the root causes of small firm failure it should not be surprising that this turns out to be the management inefficiency of owner-managers.

So do you see there is a cost in Small Business; that cost is an on going payment? If you are unwilling to pay the piper to do the Business Plan, to do the SWOT Analysis, to use the Business Coach, to retain the professionals to advise you than you will pay another price. What is that Price? Well, it is the Price of Failure.

The Price of Failure is too costly for me.  Try the Price of Success, which is FREE.

Tagged with: Business Plan • compete • planning • Small Business • SWOT • SWOT analysis

Filed under: Small Business

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