Why Your Business May Fail

:: 00:00

You are listening to the I Hate Numbers Podcast with Mahmood Reza. The I Hate Numbers podcast mission is to help your business survive and thrive by you better understanding and connecting with your numbers. Number love and care is what it's about. Tune in every week. Now, here's your host, Mahmood Reza.

:: 00:28

We are all failures, at least the best of us are. So said JM Barry, famous Scottish playwright, novelist, and creator of that wonderful iconic character, Peter Pan. Hi folks. My name is Mahmoud. I'm proud to be a practicing accountant and educator who helps and supports businesses of all shapes and sizes, type, and form.

:: 00:51

This weekly podcast of I Hate Numbers is part of my mission to help your business improve your money mindset, get closer to your numbers, make profit, survive, and thrive. What's not to like? One of my motivations behind this week's podcast of why your business may fail is my recent business birthday. On the 1st of February, 1995, I jumped ship leaving the industry, and I started my own accounting business in my back bedroom.

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I've skirted with failure over the years. I've made bad mistakes. I've not necessarily taken the advice that I'm going to share with you today. I've seen it firsthand. I've seen it in other businesses, clients, and otherwise. The reasons, if we are aware of why businesses fail, is that we can do something about it.

:: 01:41

Awareness of a situation is half the battle for actually dealing with it and coming up with solutions. We can be in a stronger position to try and resolve it and move forward. Now, I will say before I dive into the podcast, it’s that failure in itself isn't actually a shame. You know, we all fail at lots of different things in life.

:: 02:01

Many businesses fail, but many businesses survive. There have been well-known examples from the light bulb invention where failure is a natural part of the evolution of a business. Now, in this episode of I Hate Numbers, number 50, by the way, I'm going to share with you the four main reasons why your business may fail.

:: 02:23

Understanding the why helps us come up with solutions and prevent it happening. Let's crack on. Now, as I said, failure happens to lots of businesses. I myself have had periods over the years, not just at the beginning of my business life, but more recently where I've made incorrect decisions. I've not necessarily taken on board the reasons why failure happens, and I'm going to share with you in this podcast.

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So, I have lots of empathy and sympathy for your business who may experience the same. According to the business commentator, Brian Tracy, leadership is the most important single factor in determining business success or failure. Now, based on many studies, the primary reasons why businesses fail are down to poor business planning, poor financial planning, poor marketing, and poor management.

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Notice the word poor appears amongst those four factors. Now, a proper application of these key factors is something that makes up good leadership, and according to many studies, approximately 78% of businesses fail due to the lack of a well-developed business plan. Remember the old adage, if you fail to plan, you plan to fail.

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Now, listeners to this podcast, if you're new to it or you are a regular listener, thank you very much for your attention. If you check out previous podcasts when we've talked about business planning, and those of you who know me and shared to listen to my podcast and blogs, know that I'm a massive fan of planning.

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Knowing your end destination and how you're going to get there is half the battle. Now in this financial planning category, which is number two, 82% of businesses fail due to poor cash flow management. Now, we know cash is the vital commodity that keeps businesses of all shapes and sizes going. If you have no cash, then you will not survive.

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Your business can move forward if it doesn't make a profit. Even though profit should be your end goal, but cash flow, managing it, and being aware of what that cash flow is, is a key component behind business failure. We know that old cliche that sales are vanity, profit is sanity, and cash is reality. Now, business leadership is about taking financial responsibility, conducting sound financial planning and research, and understanding the uniqueness of your own financial operation in your own business.

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Having access to those numbers, whether it's through cloud accounting, good accounting systems, being able to dig deeper and understanding what you are spending, where the money's coming from, which customers are more profitable, which ones are consuming in proportionate resources, it's all part of it. But we know that half of UK's small businesses fell within the first three years, typically because of cash flow problems that will never leave your business.

:: 05:19

So, we've talked about poor business planning. We've talked about poor financials, poor financial planning. The third business failure factor that many commentators agree on is marketing. A significant proportion of businesses, approximately 64%, in the marketing category fail because their owners ignored the importance of properly promoting their businesses and ignoring competition.

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Now, marketing is not just posting social media. Marketing is a very complex thing, but it's effectively about matchmaking. Identifying what your customer requires, their pain points, the transformations they need, the problems they need solving, and you identifying that, and providing that solution and making them aware that you are in there to provide that transformation, providing that solution.

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Marketing is something that's not very well invested in, and also there's the idea of ignoring competition. Now, it's not about emulating your competitors, but it's about understanding what they're doing. And also, as a business leader, which is what you are in your business, you've got to be able to effectively communicate your idea to the right people and understanding their unique needs and wants.

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Leadership is about taking action, getting things done, and making decisions. If you're not doing anything significant to market and promote your business, you are most likely to be headed for the scrap heap of businesses. Understanding your competition is vital, and again, it's not about emulating the competition, but leadership is about providing value to customers and if your competitors, of which there will be, provide a better quality, a better price product, their service thresholds are much higher,

:: 07:00

then you need to understand how you can create the value yourself. You either harness your own strengths to provide different benefits such as speed, convenience, better service, improve your pricing points to your customers, improve your quality, create a different product for an unmet demand, or get out of the game.

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Now, we've mentioned three already poor planning, business planning, financial planning, understanding of the financials and cash flow, and poor marketing. The last factor that drives business failure is poor management. So this is, as much business owners not recognising their own failings, not getting out of their own way, not seeking help, followed by insufficient relevant business experience.

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Now, experience is something that we gain over time, but it's also about learning from your mistakes. And many of us go into business not necessarily having experienced that business before. We may be moving into business because we've done it in a previous job. But all those factors here is key to delegate properly, hire and invest in the right people, making sure the selection is done correctly,

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and these are all contributing factors to business failure. Some of the more common reasons put forward as to why businesses will fail include lack of a strategy, weak and poor internal financial and business controls, a very passive board, not really participating in decision-making, so a one-person-dominant company, management being very peripheral, not in depth, not being customer-focused,

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weak accounts and financial systems, and not really looking after the welfare of employees. So, let's just round this up. Poor planning, both financial and business, poor marketing and poor management are the main contributing factors behind business failure. Now, what that means is that gives your business great opportunity to improve and up its game.

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Okay folks, hopefully, you've got some value out of this week's podcast. This is episode 50 of I Hate Numbers, so we've got two episodes away from celebrating a year of the weekly podcast, I Hate Numbers. I'd love it if you could share the podcast. If you'd like the podcast, obviously give it a review. If you don't, let me know.

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If you've got any thoughts as to what you'd like in episode 52, drop me a line. There's a link in the show notes at the end. Failing that, take on board, reflect on the reasons behind that, apply them to your business such that your business is here to make more money, survive, and thrive. Until next week.

:: 09:36

We hope you enjoyed this episode and appreciate you taking the time to listen to the show. We hope you got some value. If you did, then we'd love it if you shared the episode. We look forward to you joining us next week for another I Hate Numbers episode.