Four reasons why some businesses soar while others sink

Joel Svensson

What do successful businesses have in common, and what sets them apart from the failed ventures? There’s a lot more to it than securing sufficient capital.

There are many reasons businesses succeed or fail. A multitude of studies have been conducted, each with greatly differing results; but a handful of issues tend to crop up more than others.

Tackling these problem areas might just be the difference between make or break for your business.

Cash flow

Cash flow issues are a major obstacle for small business, responsible for over 40% of Australian SME failures.

A common cause of cash flow problems is confusing a business’s balance sheet with its cash flow statement. The two are not interchangeable. Having money owed to you is not the same as having it in your account; you cannot pay bills with accounts receivable, until they are collected.

Businesses with healthy cash flow follow a few fundamentals. Good bookkeeping, strong invoicing procedures and a system for generating regular business. They also have a firm grasp of their overheads and, ideally, good relationships with their vendors.

A poor business plan will see the ground shift beneath your feet, and you’ll have to burn money just to keep up.

Planning

Inadequate or poorly informed planning is another top causes of business failure. This may have something to do with the fact that many business owners consider advice from family and friends – as well as “gut instinct” – more reliable than professional input.

One of the top killers of young businesses is an excess of spending. A poor business plan will see the ground shift beneath your feet, and you’ll have to burn money just to keep up. Strong planning involves hashing out strategies for future scenarios, allowing you to manoeuvre your business more efficiently.

A business plan must also include room for growth. Many initially successful businesses let their success get away from them, and don’t scale their operations to meet demand. They end up understaffed or overextended, and crumble under the pressure of their own rapid growth.

Successful firms are aggressive and consistent in building their networks, marketing their products and generating business.

Management

A lack of training and/or experience is a common precursor to having to close up shop. An owner might know their product inside-out – might even have decades of first-hand industry experience – but that isn’t the same as knowing how to manage people and processes.

Some of the most common examples of poor management include lack of strategic vision, failure to delegate, and a neglect of sales and marketing (the latter a direct contributor to cash flow pinches). Inadequate financial and inventory management are also common weak points.

Successful firms are aggressive and consistent in building their networks, marketing their products and generating business. Their financials are sound, their employees engaged, and their planning allows them to make well-timed strategic decisions. Few of these things would be possible without a good degree of managerial competence.

Few things will kill a business faster than a managing owner who can’t even get out of bed.

Lifestyle and burnout

Especially prevalent among entrepreneurs and freelance workers, burnout can manifest as boredom, mental and psychological impairment, and even as physical symptoms. And few things will kill a business faster than a managing owner who can’t even get out of bed.

Being your own boss might give you flexibility, but it also gives you more responsibilities than a regular job. Not only do you have to don all the various “hats” required to run your own business, you also have to make dozens of other decisions every single day. Decisions like what time to start work, what to wear, which project to work on – things a 9-to-5 worker doesn’t really to have to contemplate. This might seem like a trivial problem, but having to constantly make so many decisions has been shown to be mentally fatiguing.

Business owners that successfully stave off burnout are those who commit to routines and accept help. They set themselves regular hours, use their support network for venting or advice, and set aside sacrosanct time for relaxation and sleep.

The always-on approach to business ownership might be fashionable, but it’s ultimately unsustainable. 

Joel Svensson

Joel Svensson is a Melbourne-based freelance writer specialising in politics and business.

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