Avoiding business failure
Why do most businesses fail? - Because they run out of cash!
It might seem straightforward - but too many businesses miss
this simple point. The main source of finance for every business
is the same, it is not your bank, and it is not by grant or
other method of finance, it must not be your own savings – it
is your sales.
If your customers do not pay you on time, or will not pay
you on time, find some new customers.
Credit is not obligatory, it is not a right, it is a privilege
you give your customers.
If you cannot sell without giving credit then try and find
a way that you can. Failing that ensure cash collection is
handled by someone who understands that cash is king or by
you, yourself. Do not allow your sales people to protect bad
payers or try and ensure that bad payers are treated differently
if they are “good” customers.
If your customers will not pay you on time, then find some
others that will.
And understand one simple point, until the cash is in your
pocket, you have not sold anything – you have given it
away in the hope that your customer will pay.
Do not over-borrow
If you are going to borrow make sure you are borrowing finance
you need to go forward. Every penny you borrow to make up for
your customers not paying, for paying staff that are not performing,
for assets you may not use, for covering a short-term, or long-term,
shortfall, is extremely hard to pay back.
If you have to use someone else’s money to achieve
your goals ask yourself one question first
Is there another way?
If your idea is so great why not make some money first? If
the money you borrow is to enable you to succeed, why can’t
you succeed first and use the money from your own success.
Money you borrow from yourself is the money that is easiest
to pay back!
If you must borrow set some rules
- Never borrow more money than you need. Never, just have
a bit more, if you do not need it, do not take it – EVER
- Pay it back as quickly as possible. If there is a choice
between going on holiday to get away from it all or treating
yourself to a new car, stop – pay it back, first.
- Do not take finance just because it is available. If you
are being offered money or easy finance do not take it unless
you need it
- Do not, ever; borrow to get out of failure. If your business
is failing what good will borrowing do? Lack of cash is not
the real problem; it is symptomatic of something else. Do
not borrow until you know what the problem is. Shortage of
cash is not the problem.
Do not over-invest
New equipment is expensive and by the time it is fitted,
you are all trained to their exacting standards and the cost
of bedding-in is counted it is even more expensive.
Why sacrifice success for the latest technology, a new un-costed
idea or a great salesman, office manager or other ideas you
have for changing the business, if the business is already
providing what you want.
Sometimes the equipment you have, the people you have and,
most importantly, the business you have is the best that you
can have.
Do not over-invest yourself into closure
Do not do nothing
The biggest decision that most business owners make is to
do nothing, and keep doing nothing.
Doing nothing is an option and so is changing everything
and making a huge mistake.
Get yourself in a state of mind where you are constantly
evaluating and therefore consciously doing nothing.
Do not do nothing because you do not want to do something.
Make conscious decisions, not unconscious ones.
Manage risks
What would you do if your major supplier shut down tomorrow?
If your business burnt down?
If your major product was inexplicably banned?
Time after time things happen to businesses that they could
not believe were going to happen. What do you believe cannot
happen?
Here is a list of immediate things you might want to consider
how you would react;
- A fire or flood or other natural disaster
- A major theft
- A major delivery being damaged during transit
- Your key members of staff leave
- Your key staff leaving to work for your major competitor
- Your rival receives sensitive information about your business
- Your computer system fails
- Your computer system gets a virus
- All your computer data gets corrupted
- Your biggest customer cancels all of their orders
- Your key supplier shuts down – note, your key supplier,
not necessarily your biggest
- Your key product gets banned
- Environmental legislation stops you supplying certain
products
- Environmental legislation doubles your costs
Try and add others to this list
Now assess them against these four responses.
- Can you stop them happening in the first place, or at
least make it extremely unlikely
- Set up systems that ensure the effects are minimal. For
example, ensure that your administrative people are not irreplaceable;
make the system run the business.
- Insure against the things that could really affect your
business, not what the insurer tells you must be insured
- Do nothing
Try and make sure that option 4 is not used to often!
Crisis planning
Businesses get into crisis every day.
Get a plan to solve those crises before they occur.
First of all ensure that you have a contact list kept up
to date and kept off-site by all key employees. It is one of
the most important documents you could have and it should contain
- The contact details for all of your staff
- The contact details of anyone who can help you set up
new premises quickly. People you know and those that you
may not
- The contact details of a back-up computer company. You,
of course, back-up your system regularly and keep that information
off-site
- The contact details of a service which can offer telecommunication
help
- A list of your advisers
- A list of your suppliers
- A list of your customers
But you know all of these names and numbers don’t you?
Of course you do.
But what if it is you that is the crisis, or are you indestructible?
Ensure you, and at least one other trusted person, has this
list and ensure that you, and at least one other trusted person,
knows what to do when one of the crisis actually happens.
Your business
What is the biggest constant we have seen in 25 years?
The owner forgets it is their business.
It seems remarkable but take a look at yourself.
Does your business work the way you want it to? When you
look out at your business is it exactly how you would like
it to be? Are your people the people you want? Are your products,
your results, your customers and your suppliers working exactly
as you wish them to?
Do you achieve the results you want? Or are they actually
what your staff, your suppliers and your customers want?
Most businesses are failing for a simple reason; they are
not acting in the way the owner wants them to.
Even if you find writing a plan a little daunting take the
time, right now, to write out what you would like your business
to look like?
How would you like to feel when you think about your business?
How would you like your customers to feel when they get your
product, how would you like your staff to feel?
A business plan is nothing more than a list of things that
need to be done to take you from where you are now, to where
you would like to be.
Write one now and change your business forever.
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