How Long Have You Been In Business?
Apr 11, 2016
If it’s longer than five years then bloody well done! According to official government statistics 40% of businesses in Scotland fail within 2 years. Within 5 years this has gone up to 58%. But don’t think just because you’re based in another part of the UK the figures are different – they’re not.
So why are the statistics so awful? In my 20 years as an accountant I’ve seen a lot of businesses come and go. Some limp along for years never making any money while the owner injecting lots of capital into it from savings or family or friends to keep it going. Others scrape by only just making a living while the owner knows they could make a lot more money if they went back into paid employment. Generally after 5 years or so both types of owner are heartily sick of their business so they close it, swallow the losses and go back to paid employment – and who can blame them!!
So what are the similarities between both types of business? Much of the time is starts out with the naive thought – “build it and they will come”. No thought goes into who will buy the product or service, where you will find them and what the competition are doing. If there’s no competition then there could be a good reason for this - you may have to spend several years educating your potential customer on why they need what you do. That’s hard if you need to make money right from the start.
Then the next step is not looking closely enough at the numbers to see how easy or hard it is to make a living from what you’re charging – so basically making sure your business model works. This means examining your prices, your gross profit percentage, and your expected overheads. How much sales do you need in order to make enough profit to make a good living?
Some of this means doing a wee bit of ‘what if’ analysis. What happens if you put your prices up by 10%? What happens if you put your prices down by 10%. What if your sales are 10% less than expected? What if you have a bad debts? Have you factored in tax and VAT? The more you can closely study your business model, the more you can plan.
And really the last sentence there hit the nail on the head. Many small business owners fail to do enough planning. Yes they may have produced a business plan as a tick box exercise in order to fulfil certain criteria for the bank, funding or a government agency. But many of the plans I see don’t make sense and are ‘pie in the sky’. The business owner doesn’t always fully understand the plan and doesn’t have any way to measure if the plan is coming to fruition.
Let me give you an example of what I see a lot of. I have a client who runs a successful business but over the years he’s started a couple of other businesses which have failed. These are planned on the ‘back of a fag packet’ with no thought about whether he’s charging enough for what he’s doing and how he comes up with a price.
His last business closed after 8 months and he’s down around £20,000. No matter how many times I’ve asked him to do some proper planning he thinks he’s immune to business failure simply because he’s been lucky with his first business. He won’t pay for any help and thinks all he has to do is open his doors, make some sales (which is the bit he’s really good at) and the money will flow.
For a couple of years now Murray Associates have been running the SureStart Programme designed to get new business off to a flying start. We look at all the things that can trip up new business and help to get the business model right at the very start. In fact last week I had a client in the office that has just come to the end of their SureStart programme and the results over the year – sales up 672% and profit up 127.8%.
Not a bad result for a year and this stands them in good stead to go on to even better results over the coming year. Even if you’re not new in business, it’s a great idea to revisit your business model and update your plans. Life moves on and perhaps your business needs to move in a different direction. Best to discover this before you’re forced through circumstances to sit up and take notice.