2.06 – Recognising Business Success
To truly succeed in running your own business, you need to make money and enjoy what you do. This is the reward for the long hours, the pressure of meeting deadlines, and the constant stream of challenges that accompany most start-up ventures.
One fundamental measure of success for any business is simply staying in business. This may sound basic, but it is not easily achieved, as evidenced by the number of businesses that fail each year. However, survival alone isn’t enough. Cash flow, discussed in Chapter 8, is crucial for survival, but profitability and efficient use of assets determine if staying in business is worth the effort.
Measuring Business Success
No one sets out to run an unsuccessful business, yet many founders end up doing just that. Answering the following questions can help you stay on track toward success:
Are You Meeting Your Goals and Objectives?
Setting business goals is essential. Achieving these goals is both motivational and a primary reason for being in business.
Are You Making Enough Money?
This might seem obvious, but it is a critical question. To determine this, consider two sub-questions:
Can you do better by investing your time and money elsewhere?
If the answer is yes, reconsider your business idea.
Can you make enough money to invest in growing your business? This becomes clear when you calculate your profit margins, covered in Chapter 13. Many businesses fail to reinvest in themselves, evident in their run-down premises and outdated equipment.
Can You Work to Your Values?
Anita Roddick’s Body Shop had a strong value system that guided every aspect of the business. While your values may differ, having a clear set of values can guide you and your team through tough times.
The Reality of Business Failures
Misinformation about the number of failing businesses is common. The often-quoted statistic that 70% (or even 90%) of new businesses fail is exaggerated. While the failure rate is high, it’s not that high. Failure can mean different things, including a business closing down, but this term has various nuances.
Millions of small businesses start up, but many survive only for a short time. Over half of all independently owned ventures cease trading within five years. However, if you make it past five years, your chances of survival increase dramatically.
Causes of Business Failures
The Office of the Official Receiver lists the following causes for business failures:
Bad Debts
Having great products and keen customers is only half the problem. Ensuring customers pay on time is crucial. Late or non-payers can kill a start-up. Chapter 13 offers strategies to ensure timely payments.
Competition
Without a sound strategy for winning and retaining customers, your business is at the mercy of competitors. Chapter 10 provides insights on how to win the battle for customers.
Excessive Remuneration To The Owners
Some business owners mistake incoming cash for profit and take it out as drawings, forgetting to account for taxes, VAT, insurance, and replacement equipment. Chapter 13 explains how to differentiate profit from cash and plan for future expenses.
Insufficient Turnover
This occurs if your fixed costs are too high for the sales turnover achieved. Chapter 13 shows how to calculate your breakeven point and maintain sufficient sales levels to remain profitable.
Lack Of Proper Accounting
Busy business founders often delay tracking figures, leading to missed signals or wrong decisions. Chapter 13 discusses how to stay on top of financial information.
Not Enough Capital
Starting on a shoestring is common, but being realistic about the cash needed to get underway and stay in business is crucial. Chapter 8 explains how to plan your cash flow for survival.
Poor Management And Supervision
Knowing how your business works is one thing; sharing that knowledge with employees is another. Chapter 11 covers how to manage, control, and get the best from your employees.
