The most common reasons for small business failure

The reasons why businesses fail are interesting. It is only when you sit back and really have a good look at the reasons do you understand that for most of them you can do something about them.

What do I mean when I say that?

I will actually take it further and say that 87.6% of why businesses fail is within our (or the business owners) control. Wow that is huge.

Lets have a look at what these things are -

32.1% fail due to poor financial management of financial activities

This includes lack of funding in the business to ensure you can meet your obligations. People in business do not keep a track on their debtors, creditors and stock control.

In regards to debtors it always takes longer to convert sales into cash than we initially think. So we must be organised. People think that all I have to do is increase my sales and everything will be ok. That is not necessarily the case as from what we have seen if debtors are not being collected quickly enough increasing sales just adds to the problem. The key is to have a process that you follow and you must be vigilant and follow debtors up.

In terms of stock and stock control it is really important not to hold more stock than is required as that means you have the risk of obsolesence, damage, theft and cash just sitting there.

Most people also prefer to do the work that the business does rather than do the paperwork. People find doing the paperwork as boring. What we must understand that the paperwork is very important and it is critical that you are on top of that part of your business.

Many businesses also lack reporting systems and proper controls. Which then leads to an inability to manage cash flow and profit. Regarding the reporting systems and controls a basic example is that of debtors. You must be clear in your terms, pay attention to debtors and ensure all of your paperwork is correct.

14.6% fail due to lack of management competence or experience

Might be the world’s best at their chosen occupation but that does not guarantee you’ll be a great manager. Lack of experience brings mistakes which in turn can create major problems. This on the positive side is a massive opportunity to learn as well. An opportunity exists to attend seminars and training sessions whenever possible.

It is important that you recognise your strengths and weaknesses. Being a guru at your service or your product does not make you good at running a business. You need to understand the market dynamics in regards to customers, competitors, suppliers, team, regulators etc and see how they will affect your business.

12.4% fail due to inflation and economic conditions

Currency movements, interest rates and other financial mechanisms can cause a business to fail. Trading conditions can also be affected by local, national and regional events and then there are natural disasters. These things are all outside your control but can dramatically affect your business.

12.3% fail due to poor books and records

We must ensure that we keep detailed financial figures because what you can measure you can manage. You must think of it like driving a car without the fuel gauge – you are never quite sure if you will have enough fuel to make it. The same applies to business, without checking and measuring you are never sure of the funds available or who or what you owe. It is critical that you know where you stand in terms of dollars at all times.

10.7% fail due to sales and marketing problems

Many people find this area challenging. You must remember and make it a priority to understand that you are in business to market whatever products and services you have to offer. It is great to be the best at your product or service but it is even more important to be great at marketing and selling what you have to offer. Without the right skills in marketing and selling you could have the best products and services in the world and suffer in business because you are not able to get the message out to the world.

You need to be focussing on the 5 key business building strategies (please refer to www.globalbusinesscamps.com.au for more information on this) as that is the most cost effective business building strategy.

9% fail due to staffing problems

You must have the right team on the bus and in the right seats. If you have that you will have a stronger business than if you do not have that. Most people are looking for more than just a job. They are looking for career progression, growth, delegation, work life balance etc and not just money. You must involve your team in decisions and what you will find is that they will get more engaged and your business will improve.

You must constantly assist your team to grow by constant education and you should make sure that you communicate at all times with them. If they know what is going on, why it is going on and what it means to everyone they will have more buy in.

8.9% fail due to failure to use external advice and personal issues

Getting independent advice is an investment and not a cost. Developing professional relationships with people who understand your business can save you money and heartache later. Mentors and forming a board are also very important. Breakthrough companies have mentors for their key people and board of directors. By doing this it ensures that everyone is driving in the right direction and focus is on the things that matter.

Then there are the personal factors including divorce and illness that can dramatically affect a business.

So as you can see from all of the above that only 12.4% of why businesses fail is from factors outside our control. Everything else is within our control. So it is important to control what we can control to keep our business moving in the right direction.

To find out more please do not hesitate to contact me on 08 8212 4475 and or e-mail me at john@globalbusinesscamps.com.au.

Customer Service Levels, communication and who is the Judge of that

Business and customer service has two points of view. One being from the customer and the other being from the business. When both of those parties are happy all is good. Customers get what they want and the business and business owners get what they want. It is critical that there is constant communication between both groups. Communication will ensure that if there is a problem something can be done about it and the relationship continues.

Why should that be the case, you might ask?

From the customers point of view – We must communicate with people that we believe have not provided the level of service that we are happy with. As we should also communicate when we are happy with the service provided. Businesses need feedback.

From the businesses perspective – One of the most important things in business is finding out what your customers, patients, clients think about you and your service. People go to a place of business to get a result, an outcome a solution to their problem. No matter what business we are in. We could be selling clothes, food, professional services etc it does not matter. What does matter is that we understand that customers come to us to fulfill their needs.

As a business owner we must do everything we can to provide the customer with what they need. We should also do all we can to make their experience with us memorable. Interestingly I believe that we are now living in the experience age or experience economy. People are always after a good time or fun time or an experience. They appreciate that business is business but they now expect more. If we do not give them the more that they are seeking they will determine that we do not care about them and typically they will judge us negatively. we should never forget that the customer is the judge as to how good the service is. They then vote with their feet if they are not happy with the service.

This is an e-mail I sent recently to my regular menswear shop. To set the scene I have been a regular to this shop for about 5 years and enjoy shopping there. I have purchased a number of suits, shirts, slacks and ties. I also tell anyone that says “I like that suit” etc where I purchased it and why they should go there themselves. So you may say that I am an advocate for this businesses.

The incident that has soured the relationship has to do with a shirt I purchased from there to wear at a wedding recently. I tried on a number of shirts and one was great but tight. My wife and I both said that the shirt was too tight. The shop owner said “no it is perfect, that is the style and that look great”. I asked “are you sure” and he said “yes, it is great”. So I purchased the shirt and wore it to the wedding as I had no other shirt to wear. It was tight. Since then I have not worn the shirt and eventually I said to Helen I am going to take the shirt back it is not right and I will never wear it again.

We took the shirt back and I told him the situation and he said leave it with me I will go back to the supplier and get you another shirt. That was not the response I was expecting. What I was expecting was, look don’t worry, you are a regular and I did insist the shirt was fine and I will change it. But that did not happen.

So here is the e-mail I sent him recently:

Hi ,

How are you? I hope you are well and busy. First of all thanks for fixing my slacks and for doing it at no charge, I appreciate that.

Mate I still have not heard from you regarding my shirt. You know that I have been a regular with you for about 5 years now and that I may not be a huge spender but every year I buy 1 or 2 suits, shirts, ties etc.

When Helen and I came to buy the shirt for the wedding we told you we felt it was too tight. You disagreed and said it was good. Well as you know after I spoke to you over a month ago that I have not worn the shirt at all since the wedding.

Remember I have been a regular customer, and in my eyes a regular customer is one of the best you can have. As they keep coming in and you do not have to spend marketing dollars to get them back in there. You may or may not know but it costs a business 6 times more to get a new customer to come and deal with that business than to get an existing customer to come back again. Wow – 6 times more.

As the shop owner, what I would have done would have been to replace the shirt then and there and then I would have tried to see what I could do with the supplier. Not say to me “I will get you a new one from the supplier”. My question is what has the supplier got to do with it?

Mate I am disappointed to be sending this e-mail but to me it appears that you do not care about me as a customer. The other interesting thing that you should also be aware of is that 68% of customers leave due to perceived indifference. Perceived indifference is when the customer feels that you the shop owner does not care about me. That is the feeling that I have got now.

The sad thing is that I will be buying another suit and 3 shirts over the next week and they probably will not be from you. Even though I think your stuff is great.

You should be working out the lifetime value of every customer and you should be looking after your customers?

I hope the above helps you in moving forward as part of your customer service strategy. Good luck in the future.

Regards,

John

To my surprise he called back within 5 minutes of the e-mail going out to him. At first I thought great we can sort this out. He started however saying that if I believe that he misled me to bring the shirt back and he will give me my money back. Wow, that is not what I asked for or expected. I said that is not what I believe, that you misled me and I do not want my money back I just want another shirt. He said no bring the shirt back and I will give you your money back.

So what a result. He probably should not have called me right away, if he had left the e-mail there and calmed himself down maybe his responses would have been different. Remember the customer is the judge and he or she will vote the way they feel they should vote. I wanted to work this out but now I am not sure we can.

When it comes to problems or defects, the customer will remember the satisfying outcome, not the original error. Studies done by Marriott on guest return rates found the following astonishing results:
. If there was no problem with their stay, the return rate was 89%.
. If there was a problem and it was not corrected the return rate dropped to 69%.
. However, this is where it gets really interesting. If there was a problem and it was solved to the guests satisfaction the return rate jumped to 94%.

So the moral of the story is constantly speak to your customer, patients, clients and find out how you are doing as a business. Find out are you serving their needs are you adding value to them. Are they having a positive experience when they are coming to deal with you. As you can see from the Marriott example if there are issues and problems and they are rectified then the relationship actually can get stronger. That does not mean that we should go out of our way to create problems so we can fix them. It means that when they do crop up do not blame the customer, fix them and the relationship will be stronger than before.

To find out more please do not hesitate to contact me at john@globalbusinesscamps.com.au.

60% of Businesses are failing. Why? Cash flow is killing them

I had to share this with you Today as 60% of businesses are failing. Why? Cash flow is killing them!

I am so concerned that I will be drilling into cash flow and cash flow management below.

As they say, cash is KING and without cash it does not matter how profitable a business is, the business will fail. So let’s highlight that again – NO CASH FLOW or SLOW CASH FLOW will over time lead to failure. Simply put, cash flow is the money coming into, and going out of, your business. You need to take into account not just the amounts of money coming in and going out, but when these movements occur. If a business is unable to pay its debts as they become due, it will not survive.

As many as 60% of businesses fail, not because of a lack of sales but because of a cash flow shortage.

The best way to ensure you have the cash flow you need is by planning and monitoring. This relates to Secret no 2 Planning for Success and Secret no 4 Measuring and Managing from our 6 SecretsTM to running a successful business.

Some good practices for all types of business whether they are in service, retail, manufacturing or any other industry:-

1. Do not wait to send an invoice – instead of billing at the end of the month, bill as soon as a project or work is completed or when the stock leaves your business. For service businesses that carry work in progress you can also progress bill.

2. Deposit the cheque as soon as you receive it - many businesses only deposit once a week.

3. Do not wait to collect money owed – Call first and send a reminder letter on an agreed date.

4. Offer quicker easier ways to pay – use credit card facilities and direct deposits to help improve cash flow. Some people worry about the 1.5% they will get charged by collecting their income with credit cards. Make it easy for your customers to pay.

5. Get the best interest – Do not keep too much money in your cheque account.

6. Monitor past due date accounts – At least once a week, generate an accounts receivable (debtors) ageing report and be pro active to collect them.

7. Use your lines of credit – This includes overdrafts from banks or credit from suppliers. It is a good idea to have these set up well before you need them.

8. Collect deposits – Especially for projects that have high up front expenses.

9. Settle customer disputes quickly – Unhappy customers often will not pay until they are satisfied. Customers vote with their $$$’s if they are unhappy they will not pay and they may even leave.

10. Limit Spending – Discretionary spending should always be reviewed and managed.

11. Use leasing and hire purchase – If you are spending money on equipment you could lease or hire purchase something to maintain cash flow instead of paying for it fully from cash flow.

12. Constantly monitor your stock levels – do not have more stock on hand than you need to. Stock sitting in your business and not going out the door is lost money. Check stock on hand and make sure you do not just order stock because your supplier thinks it is a good idea.

The above are some ideas that you can use in your business. Please make sure that in these tough economic times you are focussing on your cash flow. You must always know where you stand with your cash. You could be making profits and running out of cash.

Putting my money where my mouth is:-

Attend our business camp being held at the Sheraton Mirage on the Gold Coast from the 4th – 6th of April to really enhance your cash flow and cash flow management. If you do not get any value from the 3 days I will personally give you twice your money back.

If you wish to find out more please contact me on john@globalbusinesscamps.com.au or visit our website at www.globalbusinesscamps.com.au. This will be the best event you ever attend.

Also, I have a host of free tools at http://www.globalbusinesscamps.com.au/freetools.htm. Please go and grab them and use them to build your business.

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Succesful businesses need a system a plan – they need to decide and take action

I need structure, guidance a plan to help me take my business to the next level.

That is often what people say to me when we are discussing about running a better business.

One of the really neat things that we have is the Global Business Camps and Principa 24 month business implementation process. The system that we have is designed to develop a competitive strategy and action plan for your business. The process allows you to remain organised as you work through improving your business.

Step 1 – The planning session.

Brainstorming session after completion of a questionnaire to cover all business areas. This will highlight all the areas that need attention and other areas that are strengths of yours in your business.

Step 2 – Identify marketplace/customer needs and frustrations.

Here it is important to asses the standard of the current customer service levels. Once you know your current service levels then you can do something about improving or maintaining them.

Step 3 – Develop your business model.

Here you must look at the mission, visioning process, competetitive strategy and then look at revenue and business model based on that.

Step 4 – Identify system failure points.

Ask the team in a team advisory board and look at current systems of the business. You must determine how they work, are they actually working and how they can be improved.

Step 5 – Develop preformance standards.

Setting the performance standards, identify moments of truth in the process of doing business and train and empower team members.

Step 6 – Systematise key processes and develop an operating plan.

Look at the functions, activities and operating departments required to run the business in line with the vision and the business model. Establish an operations manual.

Step 7 – Develop a financial plan.

Conduct a number of what if analysis scenarios and establish a profit and loss and cash flow plan. Look at key performance indicators and regular reporting plan.

Step 8 – Carry out a product/service and market needs analysis to enhance/develop a marketing plan.

Here you would review all products and service lines, brainstorm your unique core differentiator and consider guarantees for your business.

Step 9 – Pull it all together in a management control plan based around key performance indicators.

Here you focus on monthly meetings to ensure you achieve your plans, look at critical success factors and key performance indicators. Focus on financial management.

The above is the structure that people in business should follow to ensure that they achieve their dreams and goals in business. We typically work with businesses on this over a 24 + month program as any change for it to be sustainable and for people to obtain the full benefit must be:

- Implemented slowly
- Changes must be explained and the culture embeded into the changes
- Team must be educated, trained and engaged
- Results must be measured and managed
- Ongoing assistance used

If you follow the above steps you can dramatically alter your businesses performance over the long term and in turn your business value.

Please visit our website on www.globalbusinesscamps.com.au or e-mail me on john@globalbusinesscamps.com.au to find out more.

Golden Rules for any Entrepreneur

From speaking to many people, reading books and listening to others I have come up with some Golden Rules for Success for Entrepreneurs.

The list is not exhaustive but it covers off on some very important things:

1. Constant Learning
Attend training sessions, network with people, travel and seek out other experienced entrepreneurs. The great entrepreneurs are all about:
1. Always learning
2. Constantly asking questions
3. Always willing to look at other solutions and if they are better they will change direction
4. They are constantly looking for habits to adopt and systems that will help them run a better business

2. Ability to Communicate
You must be able to sell your ideas or have others buy into your ideas. Effective communication is one of the most important skills you can have. You should always be looking to improve this skill.

You need to be able to communicate to all stakeholders to get to where you want to get to. For example – in regards to your team. How do you get them to buy into your business mission, core values and vision. You must be able to communicate and engage your team.

3. Build a Fantastic Team
The business is not just you, the owner the entrepreneur. It is all about a group of people all working together and all working for the common goal or purpose. The really good entrepreneurs know what they are good at and know and understand their weaknesses. They then work to their strengths and delegate to others the things they are not good at. So the key is that the very succesful entrepreneurs involve other people in the business. From my recent blog “Stay ahead of the Pack” you would have noted that I mentioned the importance of having an open environment and constant feedback.

4. Business Skills
Every entrepreneur must learn the basics of business. In most instances people get what Michael Gerber says is an ‘Entrepreneurial Seizure’. They look at what they are doing for someone else in business and think this is easy I can do this for myself. What they do not realise is all of the other things that come with a business.
Some things you you must know:
- Cash flow and cash management and profit and loss – There is a difference and if we do not know this we can be in very serious trouble. You must understand that CASH IS KING.
- People management and human resource management – Teams dysfunction, that is a fact of life, we must know why and what to do about this.
- Marketing – We are in business to market the services or products that we have available. We are not in business to be an architect, hotelier, retailer and so forth. If we cannot market what we do and people do not buy from us we will be out of business before we know it. We may be the best at doing what we do, but that will not help us.
- Performance evaluation – You must evaluate how your team is going and you must provide them with constant feedback. A feedback performance evaluation system is a main part of any great business.

5. Build Strategic Relationships
Networking is a major differentiator of good entrepreneurs and great entrepreneurs. The great ones perform this function very well. Not only does this bring in new work and new opportunities it also assists with ongoing development. There is awesome value in speaking and sharing with other entrepreneurs. Many get involved in groups (some of the groups are formed from conferences and events) so they actually then have a board type of relationship. Under this arrangement they get together regularly and brainstorm to solve their issues and problems.

6. Work with Technology
Technology is all about productivity and promotion. Not only is there technology to run better processes in your business but there is the added benefit of promotion now. With social media and websites there are so many chances now to promote your business, to promote yourself and inturn promote your overall brand.

7. Share the Rewards
As we know and understand the success of all entrepreneurs does not just come from themselves but from all of those around them. It is therefore very important that results and rewards are shared with the team. By sharing the rewards it encourages – motivation, innovation, team work and overall business success.

8. Assess and Manage Risk
The more you delve into issues the more you can assess and manage risk factors. Sometimes you can get caught where you feel something is a great idea and you can’t lose. But that is the time where you most are in need of a fresh set of eyes. Someone independent looking at the situation with no pre conceived ideas will be an invaluable asset. This could be the board per 5 above, your advisers or someone else. Entrepreneurs are positive people and will always look at an opportunity as just that. Sometimes however they can miss things because of their optimism. Trust me I know.

Here I have highlighted 8 key rules or golden rules for any entrepreneur. As I stated at the outset they are not exhaustive and by no means are they complete. All I have done is bring to light things that you must know more about.

As always there is a massive opportunity to look at all of the above at our Business Camp. Also, this is a huge opportunity to network with many like minded entrepreneurs. The next event is on at the Gold Coast, Queensland, Australia from the 4th to the 6th of April. To find out more information please visit our website at www.globalbusinesscamps.com.au.

Stay ahead of the pack

With all of the competition that is out there – how can we be noticed and stay ahead of the competition?

Most people in business are asking this question. If you are not asking that question then maybe you should be.

I will touch on a few areas in this blog on how you can stay ahead of the pack. As you can imagine there is so much detail behind the things I mention below. In business the strong businesses and the ones that get noticed survive. I suppose that is exactly like life that applies to any species.

Ok, lets get started:

Value Proposition
You must determine what your value proposition is and constantly refine and improve it. Remember change is the only constant and the competition out there is constantly changing the way they do things. So should we be.

Focus
You must stay focussed at all times on the business and at times you will need to make quick decisions. Quick decisions will help you stay ahead of the pack. Sometimes you will end up making wrong decisions but that is how business and life works. You cannot get it right all of the time. As long as you do not bet the whole business on a decision then it is ok to get things wrong. Just move on. Do not let your setbacks hold you back.

Decide and Take Action
To get something done in life or in business you must actually do something. So the key is to make a decision. You then must take action based on the decision(s) and then you must measure your results. If you measure you can manage your outcomes. At that point if something is not working you can change it.

So it is important to understand:
a. Make decisions
b. Take Action
c. Measure and Manage
d. Change what is not working and keep what is working

There are 3 decisions that control our destiny (From Awaken the Giant Within):
a. Our decision about what to focus on
b. Our decision about what things mean to us
c. Our decisions about what we will do to create the results we desire

As Anthony Robbins says: “We must seize the moment. I believe it is in your moments of decision that your destiny is shaped. The decision that you’re making right now, will shape how you feel today as well as who you’re going to become tomorrow”.

Our People
The next thing you must understand is that the success of any business rests on it’s staff. This is a critical area and we must focus and get this right. As per Jim Collins in his book Good to Great: “If we get the right people on the bus, (the wrong people off the bus), the right people in the right seats – we’ll figure out how to take it someplace great”. So for the leaders out there if you can make this happen then you can lead them and go someplace great.

Culture and Environment
It is important that you as a leader or as the leadership group build an open environment, provide constant feedback and if at times people are unwilling to change asking them to leave. This would also apply to good people that cannot change. For the rest of the team that is onboard and wanting to move forward with the business they should all be focussing on taking care of the customers and building a ‘real’ business to allow it to work and grow without the owners.

Measure and Manage
Business is all about testing and measuring. Some things will work and others will not. So keep trying.

For more information on building a business that works so you do not have to, please contact me at john@globalbusinesscamps.com.au. Also, visit our webiste at www.globalbusinesscamps.com.au for more ideas on running a better business and to find out about our signature 3 day business event.

It is all in the Numbers for any Business

There are some critical numbers that people in business need to be aware off but most people are not. Business is all about numbers and how they relate to the activities that we generate.

As I said most business people do not know these numbers yet if they did it could make a massive difference to the way they operate their business and the long term results that they get from their business.

So here goes:

1. 88% of business failure is due to things that we as business owners can control.

Wow, so basically 9 out of 10 business failures we potentially could have stopped or done something about. To further make it even more interesting 32.1% of the 88% is due to poor management of financial activities. What do we mean by poor management of financial activities. This includes – lack of funding, not doing the paperwork, lack of reporting systems to measure relevant indicators, unable to manage cash flow just to name a few.

2. Over 50% of businesses have no strategic business plan and interestingly 50% will change hands in the next decade.

Therefore people in business are not planning and they are just hoping that things will happen and success will come. As we know outcomes come from actions taken from decisions that have been made. To make a decision and take action you must know where you are trying to get to. Otherwise as they say if you aim at nothing you will hit it with amazing accuracy, every time. How true is that.

3. It costs 6 times more to get a new customer to deal with us than what it takes to get an existing customer to buy more from us.

Why is that so people ask. The reason is that to get new customers to deal with you you have to chase them and promote to them and potentially wine and dine them. Existing customers already know you because you have a relationship and they trust you and love working with you. Provided that you are giving them awesome customer service and you are doing all you can to help them get to where they want to get to.

4. A 15% increase in customer loyalty can increase profitability by up to 80%.

Once again this has to do with the relationship and if we take care of customers they will stay with us longer. That means that if we can focus on lifetime value of a customer our profits over the longer term will go up. As we do not need to constantly spend more money and time trying to get new clients.

5. A fully systemised business is worth up to more than 86.7% more than an unsystemised business.

The reason for this is that people can buy a business that is a system and they can walk in there and things will work. That is why businesses like McDonalds are worth so much more than normal fast food outlets.

6. The cost of employee turnover is up to 150% of their remuneration package.

The reason for this is that you drop time interviewing, training, bringing them into your culture, then working out that they are not working out and then having to go through the process of them exiting the business. This all takes up so much time and is so expensive to your business. Employing people is such a critical thing in any business and you should try to implement systems to make the process better and reduce the risk of the wrong employee. But even the best thought out plans at times will not help you from the wrong employee. At times they will slip through the cracks and get into your business. All you can do is plan and try to work through a process to reduce the likelihood of that occuring.

7. 80% – 90% of the success of any business ad, letter or communication comes from the heading.

The heading is the first thing that people see. If it catches them they will raed further if it does not you have lost them. One of the really neat things you could try in your business is a split run test on headings with the same body. You will be amazed at some headings for one reason or another have dramatic response rates. So the seceret is – test and measure everything including headings.

Above are just some of the key numbers that people in business should know but do not know. These are so important that just by thinking about them you can actually start planning how you can do something about them.

It is all in the numbers.

To find out more about these numbers and other critical numbers in business please visit our website at www.globalbusinesscamps.com.au.