We hear it every day, read about it in; emails, newspaper, and online. You may even be an entrepreneur bombarded by “helpful” advice from so called self-imposed gurus or worse “well meaning” family members. We know most of the advice is good and well meaning. However, it is one thing to hear and read about it but without direction an entirely different thing to execute it effectively. Almost all those giving helpful advice never seem to have a solution only that you are doing it wrong. I have been in the Finance and Consulting Businesses for 20 years and in business for myself since 1995. I have had the opportunity to receive this “helpful advice” as well as talk to clients who had based decisions on such misplaced advice. However, what we have come across most while working with our clients and the basis for this article “Six Fatal Flaws of Business” is some of the most common reasons why companies are having trouble.
Six. Fatal Flaws of Business:
- Fatal Flaw 1: Not making a plan, setting goals and using bench marks to get there. -· Only 1% of the companies and entrepreneurs had a written plan that set down goals, measured performance growth and placed benchmarks for achieving them.
- Fatal Flaw 2: Not being able to effectively read financials: balance sheet, P & L, etc. although most assume they do. — Only 67% produced financials – once a month – losing out on one of the greatest management tools available. 90% of those failed to use it to adjust how they ran their companies. The number of small and medium size businesses failing to use their financials is growing at an alarming rate of over 15%. Those who did not run financials at all rose to over 25%. This is not a good sign for businesses, employees, the country or globally.
- Fatal Flaw 3: No real understanding of marketing and advertising and it’s uses
- Fatal Flaw 4: Not being able to effectively deal with employees or people in general
- Fatal Flaw 5: Not creating or having an effective Customer Service
- Fatal Flaw 6: Not Adapting your business to an ever changing world
It is assumed that big companies are doing well, because they know what they are doing or a great business man or woman is at the helm. In truth most carry large debts, that are used to balance the revenue flows of their business. Big companies tend to fair better financially than startups, home businesses, and medium size businesses. Why, because bigger businesses have several advantages the others don’t. They have several years of experience of trial and error and the accumulation of assets to support the business; such as building(s), land, and equipment. These assets can be used as leverage or collateral to guarantee loans. Smaller companies would either not qualify for or have to use personal assets such as; personal and or vacation home, trust funds, 401Ks or vehicles. The qualifiers for those are much higher and harder to get. That’s why so many smaller businesses get into huge credit card debts. So is big business success all about the money? Yes and no, most CEOs, CFOs, and Owners of big business are intelligent people because they understand the need for discerning the numbers and balancing all areas of business and personal life. We call it “Knowing the Business of Business.”
That’s where they excel over smaller companies, plus more specialized employees per position. It is not that small to medium sized businesses don’t or can’t have those things. It’s because the owner is wearing several hats and can’t afford to hire large number of employees. This article series is for those who can’t afford $200 an hour to fix their business, but still need to figure out what’s missing or there Fatal Flaws. Let us start with the Six Fatal Flaws most business make large and small.
We are going to give some examples, explanations and why each step is important. We will put it all together at the end using the entire model. So back to the plan, you have answered some or all of the questions, recreated the plan with actual numbers and possibly added a new revenue stream or two. You have learned business plans can be a guide to setting realistic goals for future happiness. Next time we will discuss Part 2 Bench Marks – why do you want them and how do you use them to create a better business and life style.
So, let’s start with “Fatal Flaw 1 Not making a Plan and Setting Goals”. We will discuss Bench Marking in the next article.
Let us clarify the planning we are talking about in this article; it is not those done for a bank or investors. However, those are sometimes a great starting point. This planning takes into consideration not only the forecasting numbers but also goals of how you plan to meet those numbers and what happens once you do.
The best way to start is by setting realistic and attainable goals, but not just for your business. The reason why is this: we tend to think too limited about our company, when we only see it as a future revenue stream.
Example 1: A narrow set goal with only the company in mind; $1 million in 2 years and $3 million in 4 years expand product line in year 2.
Example 2: What using a broader perspective includes but not limited to: new house upper east side $2 some examples, explanations and why each step is important. some examples, explanations and why each step is important. million (already picked out), new car for self and partner, send kids to college/start fund, invest in stocks and land, retire by 50 years old, travel once a year to some place new, go to church, and start a charity for young entrepreneurs.
Do you see the difference? One gets you excited about the future the other hopes to make this by then and produce more. It is in our human nature to want things and to like being rewarded. In the first Example there was no reward, no benefit to us as human beings only in making additional revenue, which in and of its self is not bad. However which one motivates you to push the company to do better and to think outside the box? When you start writing it not everything has to be tangible like the examples above. Some can be in-tangible. In-tangible items would be acknowledgement and self-approval of doing a great job and being successful.
Is this the plan? Partly, it is the basis for how you setup your plan. If you look at Examples 1 and 2 you should notice 1 big difference. Example 1 will make $1 million in 2 years. Example 2 the house alone is $2 million. So are these plans compatible? Not unless you plan on taking out a very large and unnecessary debt, which could stagnate your company’s growth or even cause it to close. However, if you plan for both your business and personal goals at the same time you can adjust them and place more realistic expectations on both.
Now go to your own business plan and take a second look for these things or when writing your new business plan take this into consideration:
- 1. Do you have a business plan or have you set any goal(s)?
- 2. What have you used it for or is it currently valid – if you have been in business?
- 3. Where did you get the numbers used to figure the time line for and forecasted estimates?
- 4. What is you competition doing? Number of product types, cost, direct, import or produced in house, etc.?
- 5. What can you do better to generate revenue?
- 6. What are your COGS (Cost of Goods Sold)?
- 7. Which financials do you look at and why?
- 8. Is your business seasonal or tied to the seasons?
- 9. Is there a way to generate other revenue streams from the current business without additional expense or low expense involved?
- 10. Can you contract out some parts cheaper than doing it yourself?
- 11. Figure out the costs and benefits for the additional revenue streams?
- 12. Did the numbers change; did the amount of time change?
- 13. Is it flexible to meet the ever changing world?
- 14. Will you have the income desired to pay expenses and live the life style you dream about?
Now go back to our Examples 2: Write down your new goals with the new numbers.
It may seem the two lists don’t go together, but remember if you don’t have something to look forward to, is workings that hard reward enough? And how will you know when you made it to where you wanted to be? Remember that goals are adjustable and not set in stone.
So back to the plan, you have answered some or all of the questions, recreated the plan with actual numbers and possibly added a new revenue stream or two. You have learned business plans can be a guide to setting realistic goals for future happiness. Next time we will discuss Part 2 Bench Marks – why do you want them and how do you use them to create a better business and life style.