How many times over recent years have we seen businesses fail rather than succeed, in these times knowing what a business should not do is just as important as knowing what the business should be doing. Businesses that fail often exhibit the following 7 characteristics:
1. Poor financing structures
Borrowed too much money, too much reliance on and overdraft facility as opposed to a term loan.
Unrealistic drawings and lifestyle expectations, tax issues aside you cannot draw out of the business more than what the business is currently earning.
2. Poor customer base
Product obsolescence and substitute markets, what happened to all those successful second hand shops once “Trade Me” was on the scene? Polarised customer, product or market base or alternatively, lack of targeted niche market.
3. Poor supplier base
Always great to have a good supplier around but when times get tough can they give you the flexibility you need to survive. Rule with you head, not your heart.
4. Lack of vision and planning
Failure to plan, is planning to fail, - no business plan? What happens when the bank want to look at your YTD position plus estimates for the balance of the year. The last 3 years result is like looking in the rear vision mirror – how dangerous is that when moving forward?
5. Overtrading
So often you hear of apparent good businesses failing, whys that? Insufficient capital or worse still doing too much too soon or taking on a job that is too big for them.
6. Poor financial process
Lack of basic financial records, poor attempts at budgeting and worse no attempt.
7. Lack of poor performance measures
What is your gross profit, what are your stock turns, what is your debt to equity ratio
Did you know that people who go into business can be generally classed into 6 categories, which one do you fall under:
· Get rich quick – normally go bust after a period of time
· Entrepreneurs – go for it, take risks
· Passionate do gooder
· Buy a job
· Family business
· Be your own boss
The first two categories take risks, the majority of us are in that balance of five.
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