Reasons for business failure

If you’re starting up a new business, the last thing you’ll want to think about is failure. But by addressing the most common reasons why small businesses fail right from the start, you’ll be much less likely to fall victim to the same issues yourself!

1. Setting up a business for the wrong reasons

Do you see your business as a way to get rich quick? Are you expecting more time with your family? Or perhaps you like the idea of not answering to a boss? Well, you’d better rethink!

You will stand a much better chance at success if you’re starting your own company for the following reasons:

• You have a passion for what you do, and believe – based on research – that your product or service will fill a gap in the market.
• You are fit and strong and have the mental stamina to withstand challenges.
• You’re not scared by failure. You need to learn from your mistakes, and use the lessons to succeed the next time around.
• You get along with and can deal with all different types of people.
• You possess drive, determination, patience and most of all – a positive attitude.

2. Poor Management

I often see small businesses fail because of poor management. Start-up business owners often lack business and management experience in areas such as finance, buying, selling and production, as well as hiring and managing employees. It’s important to recognise what you don’t do well and seek appropriate help.

3. Lack of liquidity

Business owners too often underestimate how much money they need and are forced to go under before they have even had a fair chance to succeed. There may also be an unrealistic expectation of incoming revenues from sales.

Work out how much money your business will need – not only the costs of starting up but also the costs of staying in business. Remember that many businesses take a year or two to get going so you will need enough funds to cover all costs until profits can cover them.

4. Bad Planning

It is vital for all businesses to have a good business plan. It must be realistic and based on accurate, current information and educated projections for the future.

5. Expanding too fast

A company expanding too quickly can lead to bankruptcy. Overexpansion happens when business owners confuse success with how fast they can expand their business. Focus on slow and steady growth.

Raw Business Interview

Raw Business magazine interviewed me this week about my career as an entrepreneur and my investment company Ravensbourne. This a summary of the interview…

Why did you start your current business venture?
I started Ravensbourne Investments in 2009 to provide capital and management support for businesses following the worst of the economic crisis.

What is your career history prior to starting this business?
I started out in the property industry working for estate agents Knight Frank in their commercial department. I then moved into their development and investment trading division where I learnt a lot from some very experienced financiers.

I eventually branched out on my own and became the CEO of a number of companies active in both the residential and commercial property sectors. In the 1990s I built and ran a waste management company, which employed more than 100 people.

What was your biggest fear before starting your business?
Failure

What has been the biggest challenge you’ve faced while running a business?
As chairman of a waste management company, I was ultimately responsible for the actions of everyone who worked there. In such a regulatory industry, it was a constant challenge making sure we performed better than our competitors.

What advice would you offer people thinking of starting up a new business?
Be passionate about your business. Whatever setbacks come your way, try not to become demoralised. It is important to take advice from others, but always listen to your own intuition and don’t be afraid to act on it.

What has been your biggest mistake whilst creating, building or running your business?
It is always easy to criticise decisions you’ve made with the benefit of hindsight. But it’s more important to have the conviction to make a decision (right or wrong) based on what you think is the best course of action at the time.

What would you say is your biggest skill?
I always remember the saying “I am sometimes a fox and sometimes a lion. The whole secret of government lies in knowing when to be the one or the other”. That doesn’t mean I don’t always get it right.

What are your strengths and what are your weaknesses?
My biggest strength is recognising I have weaknesses. My biggest weakness is not being able to do enough about it!

Tell us about your business and what you offer your clients.
Ravensbourne looks to invest in small and medium-sized businesses and help them to grow. It specialises in turning around the fortunes of companies that have found themselves in financial difficulty.

For the full interview see http://www.rawbusiness.com/interviews/adrian-kirby-interviewed-by-raw-business-50.php

Family loans keeping small businesses afloat

Hundreds of small businesses are being forced to borrow money from friends and family after banks refused to lend to them, according to a new report.

One in five said they had ‘no option’ but to turn to other sources such as their relatives when they needed finance this summer. The number is six times as high as it was just two years ago.

The survey found some small businesses are relying on credit cards as a source of cash – despite sky-high interest rates of up to 30 per cent.

However, friends and relatives were found to be the most popular alternative for Britain’s cash-strapped small businessmen and women.

An average of 60 firms are now collapsing every day, highlighting the impact of the economic downturn and the fragile recovery.

As a private equity investor, I’ve seen first hand the desperate plight of many small and medium-sized firms. They are essential to the recovery of our economy but need to have access to funding in order to survive.

Britain’s 4.7 million small and medium-sized businesses employ 13 million people, 57 per cent of the private-sector workforce. With the Government about to take the axe to public sector jobs, small firms will be vital to hiring redundant state workers.

Business lobby groups are warning that this won’t be possible if they do not have the money from the banks to grow and I agree.

The British Bankers’ Association insists its members are doing everything possible to help small firms but it’s time we saw some action.

Banks still not lending to small firms

New Bank of England figures show small business lending is in crisis and firms are paying back billions more than they are advanced.

It is the fifth month in a row that the number of loans to small firms has shrunk. Banks were warned this week that they must start lending to small businesses or face punishing new taxes.

As a private equity investor, I regularly hear stories from entrepreneurs who are struggling to survive, or expand their business following poor treatment from their bank.

Between July 2009 and July 2010, firms paid back to banks £49 billion more than they received in new loans. In comparison, during the second half of 2008 when Britain’s economy was shrinking, the banks handed out £12.5 billion more in business loans than they received in payments.

With news that 500 small businesses collapse every week, business secretary Vince Cable read the riot act to the banks at the Liberal Democrat conference. He said: “I really do hope the banking community is listening. There is a potential train crash ahead.”

Yesterday’s Trends in Lending report from the Bank of England said the situation is getting better for big companies but has not changed for their smaller counterparts.

John Walker, chairman of the Federation of Small Businesses, said small firms are facing an “uphill struggle.”

It is often said that Britain’s 4.7 million small and medium-sized businesses are the lifeblood of our economy. In this difficult economic time, it is therefore more important than ever for banks to break down the barriers to them receiving funding.

How to get your small or medium-sized business off the ground

So you’ve managed to pull together sufficient resources and working capital to put your business plan into action. The biggest mistake of many SMEs at this stage is to underestimate just how competitive the market place is and to overestimate their potential sales revenue.

To get a better understanding on the dynamics involved, it is worth looking at how larger businesses have grown in your targeted sector. What are their successes and what mistakes have they made?

It is also important to work out how you can compete with them. Big businesses can be extremely efficient; their large scale gives them the advantage in areas such as supply chain negotiations and staff efficiencies which can produce great value for the consumer.

They can make it hard for SMEs to compete because they can afford to run some sales lines at a loss to get customers through the door. But the greatest advantage SMEs have is the ability to implement ideas quickly and get them onto the market early.

Of course every business needs to keep costs low, but research and development and also promotion are crucial parts of your business plan. You should have a product that is not only efficiently produced, but is also relevant to the customer. Only then will you be able to compete on the same stage as big businesses.

How to win investment for your business

Whether you are asking for a bank loan or funding from a private equity investor like myself, the key to a great pitch is to really know your stuff. Be clear on what drives your business forward and put your message across in a concise and credible way.

Always make your best and strongest points at the outset and ask yourself if the investor is interested from the start. If they are, then move swiftly to agree a decision in principle.

Remember to tell the investor about you as a person and show you are both passionate and committed to your cause. They will be investing in you as well as your business after all. Once you get a decision in principle, move fast to close the deal because your investor will be busy and under time pressure.

It’s vital to know every last detail of your business, its market and competitors and to highlight why you are different. You’ll also need to demonstrate that you can deliver on your promises. Spend time on grooming before your pitch. If you look ‘a million dollars’, it will give you confidence and confidence is contagious!

Lastly, don’t give up if you get knocked back. The investors will give you clear reasons for their lack of interest and you can learn the lessons for next time.