Simple ways to make your small business fail

Courtesy of Wikimedia Commons
Courtesy of Wikimedia Commons

During the time before the large commercial fishing boats decimated the shoals of snoek, yellowtail and bonito in False Bay, we were able to make good money from a ski boat in the bay. The crew that we selected for fishing would pull their own weight and help us to produce catches that were big enough to pay for the boat’s running costs.

On occasion we would take out what we called a “day-tripper” which was someone who had a deep interest in fishing but when they actually tried to fish they were not successful. But we usually kept an eye on the naturally talented fisherman who could become part of the permanent crew.

Some of the fishermen that we took out on the boat with us were real characters. One was known as “Drunken” Duncan, a party animal of note, who enjoyed being on the boat but spent most of his time hurling the contents of his stomach overboard from all the drinking the night before.

Selecting the right people for your business is important in whatever business you may have. But just as important is letting them know what is expected of them, what they need to do to succeed and what is unacceptable behaviour that may lead to them being expelled from your business.

Selection of staff for your business is just one part of the broad area of administration of a small business. This not only means that you need to have a clear strategy in your market, a mapped-out business plan but also systems that ensure successful financial management and an operating plan that helps you deliver your products and services on time and to the specifications and quality expected by your customers.

If you would like to let your business fail quickly, then you should try to have poor management, no marketing plan and deliver pathetic customer service. Some say that these are the three common reasons for business failure.

Yet there are many other ways that businesses fail. These could include running out of cash through poor cash flow management, selling products or services that nobody wants to buy, not having a clear business model and not figuring out how to reach your customers cost effectively.

Part of a successful administration system is knowing the statistics in your business. The most dangerous number is one of anything. If you have one large customer and that customer decides to go to your competitor or even pays you later than you expected, you might put your business in a position where it can fail. It’s amazing how few small businesses know exactly how much their customers are costing them. The effort and money that you may be putting into one large customer might mean that you are using your small or medium-sized customers to subsidise your largest customer. A clear cost analysis of your customers will show which ones are contributing to your profitability and which ones are not.

These then are some of the major reasons for business failure but your business could also fail in weird and wonderful ways such as legal action from employees, a lawsuit from competitors or even legal action from customers. Legal challenges to your business may well be one of the last things on your mind when you are battling against the odds to get your business off the ground or keep it afloat in this economy. But it might make sense, depending on the type of business you are in, to do a legal risk assessment of your business.

Many of the reasons why businesses fail are mainly because of their administration systems. Good administration can help you estimate your gross sales and profits, clearly identify all the costs in your business, ensure that you have a profitable business model and that you pay attention to the key drivers in your business.

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