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99 % of UK business is made up of SMEs (less than 250 people), amounting to almost 4 million SMEs in UK 97% of which have fewer than 20 people and 70% are one-person owner managed businesses. SMEs employ over 13million people and generate £500billion per annum (more than half the country's Gross Domestic Product), in addition some 90% of all commercial innovations are reckoned to come from SMEs, proving how vital these businesses are to the UK economy, and of course the people who own them and work in them.
Reports show that 500,000 people per year set up new businesses with the major reasons cited for doing so as; Being my own boss, Freedom, Work-Life balance and being in Control.
Half a million people start a new business each despite figures that 51% of those will fail in the first year. Most business owners work inordinately long hours, for very little reward often because they cannot afford or have not planned to take on anyone else.
Interestingly most of these business owners end up investing their life’s savings and giving up the very reasons they started the business; Freedom, Life balance and Control. Far be it from being in control, most businesses and business owners are in fact ‘out of control’, being highly reactive rather than proactive, with no goals, vision or direction, and many being so time deficient that there is no time to think, let alone plan.
So why do so many business fail? In my research and reading I come across many reasons, often given by industry professionals who understand their profession and want to sell their services. There is nothing wrong with this at all, but in reading statistics and advice please keep an open mind as to where it comes from and how it impacts on you and your business. I believe most the reasons given are correct, at certain times, for certain businesses and industry sectors. For example, on a well known accountancy practices website, it states the top reasons businesses fail as; Lack of planning around paying tax bills, insufficient business insurance, poor cash flow and too great a reliance on small numbers of customers. It will be of no surprise that a professional accountant will have a clearer view and concern over these financial and cash issues, and quite rightly so, as cash flow is without doubt one the top reasons for killing a business, dead.
From a wider view, Pete Mackechnie, a successful consultant, published an article in February 2010 stating nine reasons a business fails;
If you take each one of these nine and relate them to you and your business, some will be more specific and relevant today, others may be so at another time. But if you look at them as a whole, if you kept on top of the nine points positively and proactively I strongly suspect you would develop a nice business and some of you will go on to create significant businesses.
I am particularly hot on the last point from Peter’s list; working in and on the business. The balance here is vital. It is no good spending all your time working in the business, but equally you cannot devote all your time to understanding the competition, doing surveys, writing marketing plans etc and working on the business or you won’t have a business. Both parts are important, but in appropriate measures.
One business colleague works all week in his small business, and spends two quality hours, quietly alone every Sunday working on the business. That’s his routine, he is very efficient and effective and has grown his business significantly (quadrupled) over the last few years, much of which he puts down to those ‘two hours every Sunday’.
Naz Daud is a franchise director who sells franchises and supports franchisees. I chose to share his view of why businesses fail because it is a good reference point for small businesses, and you’ll see some of the points are similar to Peter’s and a few are different. Importantly, take note of the ones that resonate with you. Naz states; ‘Examine all the points. If you feel that you have an answer to most of them then you are ready to take the plunge and start your own business.’
1. The manager is incompetent. Most small businesses fail because the owner does not have the knowledge to run a business properly.
2. Finances are not in place. Many people start out in business without any idea of how much money is really required. If you do not know how to write a business plan get your accountant to help you. In any new start-up cash flow is king and without proper funding even the best idea will fail.
3. The Owner gives up too quickly. Any new business will be lucky to break even in their first year. Many people new to business often assume that they are going to make a fortune within 12 months. In reality less than 80% of new start-ups make a profit in their first year.
4. Advertising. There is zero point in doing a single leaflet drop to all your potential customers. There is no point in doing a single advertisement in your local newspaper. Advertising is all about repetition. Many of your potential customers will not buy your products until they have seen your marketing material at least half a dozen times.
5. Branding. Every single piece of your company has to scream out your brand including your brochures, websites, delivery vans and the uniforms that you and your staff wear.
6. Ability to close the sale. This is really an art form in itself. Some people are naturally good closers but others have to learn by reading and studying the art of closing a sell. The more you practice the better you will become.
7. Location. Location is very important to the chances of your businesses survival. Often you will have to pay more for a decent location but it can make the difference between just getting by and turning a decent profit.
8. Ability to get on with other people. We all know that we have to treat our customers with respect but what about our suppliers. If you do not pay your suppliers on time they will start quoting you higher prices. If you are rude to them they might stop doing business with you altogether.
9. Lady Luck. Some people are really unlucky; there is no getting away from this. Just hope and pray that Lady Luck smiles at you, especially in the first year.
10. Demand and USPs. Small businesses often overestimate the demand and usually have no unique selling proposition built in to their products. If people only ever need to buy one of your widgets and you make millions, chances are that you are heading for a point of no return.
I have spent some 12 years working on points 1 and particularly 8 (staff, clients and suppliers) with clients in the UK, Europe and Middle East as part of business strategy, leadership and business development. As businesses grow, point 8 will become more and more important, as Tony Robbins once said; ‘the degree to which you manage your relationships is often the degree to which you will be successful’. In the UK, some 25%of a manager's time is wasted on managing unwarranted conflict, misunderstanding and so on, that amounts to over a full working day per week how much more productive could a business be if it were to free up this time and energy.
In conclusion, a business with a business plan that covers these relevant points and brings the plan to life using it as a tool to guide and monitor that business, has a significantly greater chance of success. So if you want control of your life and business, and maintain that happy balance for the good of you, your family and clients, write a plan.
That’s why we think that writing a business plan might be the most important document you ever write.