Why do some businesses fail and some succeed?

There are a lot of speculation about consultants. Most of the small businesses are of the belief that consultants are only for large corporations and that small businesses can run without professional or experts help, which result in SMEs relying on the trial and error method. In some cases it might work, but generally it does not. As a small business consultant, I have worked with a range of businesses and every time I get surprised by the way business decisions are being carried out.

One big question is: Why do some businesses fail and some succeed? There are many reasons, some of which are listed below:

Planning:
In my experience, I have seen about 70% of small businesses not having a proper plan. This means that they do not have short-term and long term goals. This is very damaging to the businesses in the long run. Planning is vital for all businesses irrespective of their size. Not having a plan is like driving a car without brakes, i.e. they can run for a certain distance but ultimately they are setting themselves up for a disastrous outcome.

Financial management:
Managing finance means that you know where the business stands in a given point in time by analysing real data. Imagine what the repercussions would be if you don’t have a proper financial management system in place. Management of business finances is an important key to understand the growth and direction of your business.

Business funds :
How we utilise the businesses funds is another important aspect. First of all, we need to understand the difference between the business funds and your savings. According to the author of Rich dad and Poor dad’s Robert Kiyosaki – for the first five years you must re-invest about 75% of your profit back into the business. There have been instances when small business owners spend their business funds like their personal saving accounts from the early stages of running their business, which in turn left their business a cash deficit.

Profitability:

Profit is not same as revenue. Only small portion of small businesses are profitable and the rest are either breaking-even or even losing money. Entrepreneurs mustfocus and keep an eye on their profitability by reducing cost and making all efforts to maximise profit with every passing business day

Scaling:
Scaling can be very beneficial only if done at the right time. Premature scaling can destroy your business. It could be spending too much on marketing or hiring too many people. It generally happens when no one has shown business owners how to take steps towards the right direction. Businesses must scale only when they are ready to do so.

So what does this all mean to startups and small business owners? At the initial stages of the business, everyone seems to be focused and ambitious because it’s always greener on the other side. But in reality, to start a business or to manage a business is a daunting task. So it doesn’t mean that we shouldn’t be focused and ambitious, it means that we should know how to manage our ambition. Its rightly said that being ambitious could be a double edged sword, too much of it could lead the business owners ahead of their plan without the proper building blocks in place, and the right amount can allow you to flourish your business.

So summing all up together, at some stage most startups and small businesses need help. Don’t be afraid  to get help – this may come with or without a cost, but it’s often the most cost effective solution in the long run.

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