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Business Warning Signs

We all see and read the statistics on business failure, and there is much gnashing of teeth and wringing of hands about what we could do to improve these terrible figures.

I know because I spend a lot of my R & D time in my business thinking about this exact situation.

Without fail, I’ve discovered that business failure is preceded by a breakdown in systems, people or performance in that business in eight specific areas. I’m going to share the first four of these factors in this article today.

Interestingly enough, business owners often recognise they have deficiencies in these areas, long before the business fails. However, they end up not solving the issue, it doesn’t go away, and then one day the business is gone.

In comparing successful businesses with those who fail, and in surveying over ten thousand business owners, we’ve been able to codify these common factors that either drive success or presage failure.

Businesses that know where they are going, and how they are aiming to get there, and that have measures in place to track the journey and good leaders to keep everyone focussed and moving towards the prize, tend to be far more successful at reaching goals.

Without a plan, a business is directionless, or can’t measure whether it is even on the right path, and far more failing businesses don’t have plans compared to those that succeed.

The first warning sign is ‘lack of a strategic plan’.

Cashflow is perhaps the biggest factor mentioned by business owners as an issue or problem. Often the issue of cash flow is a symptom of poor receivables handling, poor pricing, or poor debtor management.

It can also be as simple as the owner or management team not really knowing how much of the money they have is theirs as opposed to being owed to the staff, or the tax man. And yet it isn’t a money issue. “I don’t have enough money”, isn’t the right problem. “I’m bad at managing money and don’t have systems”, would be more accurate.

So the second warning sign for a business is if ‘a cash flow problem arises’ or ‘mystery about finances’.

The third key factor is a lack of awareness about market trends. If you made CD Players for cars and weren’t on top of the trend for people to listen to MP3 tracks connected to their car by Bluetooth, you could be in serious trouble the next time the carmakers plan a new model. They’re not going to include your product, and there won’t be any market.

Plus, we have Airbnb, we have Uber, we have Wotif and Menulog; all of these businesses have majorly disrupted the previous market pattern and pushed the existing businesses aside. In some cases, taking 20-40% of the market share or more in these industries, leaving the existing players to fight over a smaller share.

The third warning sign is, therefore, a business owner with a ‘lack of awareness about or planning for disruption’.

The final factor I’d like to cover is perhaps one of the most underestimated problems in business; that of quality management. In today’s economy, we are seeing a lot of globalisation and increase in technology.

There is a faster rate of change, and because of competition, many companies are finding they can’t make as much margin as before. One behaviour that occurs here is they begin to cut corners. They blame the market; they blame others. But they respond by choosing cheaper suppliers, cutting out customer service, or not checking products and services as they leave to be delivered to the customer.

No matter what is happening in your market, you have a bond with a client to deliver what you promised in your product or service. If you can’t supply a product that does what you said it would at the price you promised then either find a way to be of more value to your customers (so you can charge more) or become more efficient or effective. But you can never just deliver second best because ‘someone else made me do it’.

The fourth and last (for this article) warning sign is a ‘desire to cut corners or not deliver the quality standard that was promised’.

There you go, a lot to think about.

There are four more factors that either improve survival or hasten failure. Join me for the next article to complete your collection of warning signs.

From a positive viewpoint, of course, warning signs are also triggers for action. Ignored they will eventually lead to failure, handled and you’ll be ahead of the pack and flourishing.

Best wishes for the journey.

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