Why do businesses fail and what to do about it – part 2

April 22, 2015

Following on from the last blog following is part 2. Why do so many businesses fail and what can be done about it is importnat for anyone in business.

Moving right along.

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.

There are 3 key ratios to analyse and monitor your cash flow:

  1. Days receivable – how long is it taking you to collect the money you are owed once you have invoiced your time or for your goods?
  2. Days payable – how long is it taking you to pay your suppliers?
  3. Days inventory or days work in progress – how many days is it taking you to convert your stock or your time into invoices?

The management of these key ratios can be controlled and maintained by focusing on them. As they say what you focus on expands. So by focusing on them they will improve.

As Jack Welch, Ex-CEO of GE said:

“the 3 most important things to measure in a business are

customer satisfaction, employee satisfaction and cash flow”.

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 focusing on the 5 key business building strategies™ as that is the most cost effective business building strategy. This is really important because 15 years ago you had to advertise 4 times before someone asked you for more information. Now you have to advertise 16 times. That is a massive difference and that is why we need to be smarter in building our business.

The other thing is that the best form of marketing now is direct mail to your existing customers. How many of you are consistently going back to your customers and asking them:

  • What else you could be doing for them?
  • How else could you add more value?
  • What did they think of your service?
  • Would they recommend a friend?
  • What do they like most about your business and what do they like least about your business?

This is all part of the 5 key business building strategies.

The 5 key business building strategies™ are:

  1. Get more customers and keep existing customers (of the type you want)
  2. Get them to come back more often
  3. Increase the average value of each sale
  4. Improve the effectiveness of each process in the business
  5. Build a committed team

What you will find is that if you can ensure that 4 and 5 are in place then 1, 2 and 3 will happen consistently. Businesses that have 4 and 5 in place work better, have more engaged team, happier customers and are worth more on a sale.

Critical to know and understand:

  • Businesses with a high customer service rating have 11 times higher net profit return on sales than those with a low customer service rating
  • These businesses charge 10% more for their products
  • They grow twice as fast

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. Steve Wynn (Wynn Casinos) gets his people from all levels to tell him what they should be doing and what they should be offering their customers.

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.

According to the Gallup Research, the top 3 reasons people gave for leaving their jobs were:

  1. Lack of faith in the leadership or vision of the company.
  2. Concern at how management treats people.
  3. Lack of management support for performance reviews and employee development.

Is it a coincidence that some of the coolest places to work for are the most successful? I believe it is not a coincidence. Make some time to read up on a few of these businesses they are truly extraordinary and in return they are more profitable than others in their industry.

Stew Leonards Dairy –

Google Australia –

Pikes Place Fish Market –

Zappos –

Beechworth Bakery –

We all have an opportunity to make our workplace the best it can be. What you will then get is the best people wanting to work for you. Then the outcome is that your customers will get the best experience and they will refer friends and keep coming back themselves.

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.

Having a mentor or 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.

The importance of a board:

  1. You have a group of people that you can sound your thoughts and ideas out on.
  2. Brings extra experience into your business. All the businesses that make it have teams that work together and do not just rely on individuals. This is very important for family owned businesses.
  3. Creates a higher level of accountability. Being accountable makes people focused on achieving what they say they are going to do.
  4. Structured process for strategies and ideas to be discussed. Structure is everything in business, life and sport. If we lose our structure then we could be doing the wrong things and thinking we are doing the right things.
  5. Family businesses at times need independent people on the board. This avoids thinking with the heart and also enhances communication.

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

In Closing 

So as you can see from all of the above there are many reasons why businesses fail. The key to understand is that only 12.4% of why businesses fail is from factors that are outside our control. 87.6% or everything else is within our control. Even the things outside our control can be impacted by how well we plan, organise ourselves and act. By planning you are thinking about things and delving into potential issues. Therefore by planning it means that we are creating a business that welcomes change, rather than resisting it. By that I mean that:

  • You become better at listening to the environment and picking up it’s change signals early.
  • You can test what the market will respond to.
  • You constantly ask “is there a better way to do what you do?”

So it is important to control what we can control to keep our business moving in the right direction. I truly believe that “we create the exact level of our success and happiness”.

How do you control what you can control? You focus on the 6 Secrets™ to any business.

To find out more please visit, or e-mail or call me on 1300 883 089.

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