Whilst it is easy to say that the lack of cash to finance ongoing trading is the main reason given for many business failures, a number of operational aspects begin to point to business difficulties long before the cash runs out.
The skill is to spot the signs and be brave enough to make the necessary operational changes such that any business decline is arrested and trading fortunes improved.
There are a number of common causes of financial failure although it is fair to say that one or two negative signs do not necessarily mean that financial failure is inevitable. Clearly, the more signs that are in evidence without corrective action being taken, the greater the cumulative effect of creating an unwelcome downward spiral.
By acting quickly and decisively, some businesses can be saved and returned to a profitable pattern of trading: others are not so lucky.
Some examples of people-related signs of business failure include:
- Advice. Nobody makes the correct decision every time and most business leaders are successful because they know what they are good at and are happy to accept advice from others who have better knowledge/experience in other matters. Being headstrong and not listening to anyone is unlikely to promote success, even if the business is a single-person entity.
- Delegation. An inability to delegate, coupled with an over-developed sense of self perfection does little to promote success. People learn by making mistakes, attending courses, watching others and being given increasing amounts of responsibility. Doing everything yourself is likely to create high blood pressure, decrease efficiency and reduce business success. Many people who have built substantial businesses have done so by recruiting high quality people and delegating key tasks to them. As a result, everyone benefits from participation in the business.
- Quality attitude. A consistent and high-quality attitude toward the business product/service is paramount. For example, a window cleaner will not enjoy a significant level of repeat business if he leaves streaks/marks on a window and knocks the heads off the householder’s prize begonias when placing his ladder in the garden. Equally, a supermarket will lose customers if goods aren’t fresh or well presented. A quality attitude pervades all aspects of a business, and if the business leader has a team around him that adopts such approach, just think of the synergies that can accrue.
- Receptive to change. Many business leaders who have been around for a number of years find it difficult to accept changes to existing work practices. For example, if everyone is sending e-mails, using the postal system is helpful but unlikely to demonstrate an ability to embrace new technology. Be flexible, understand why change is beneficial and act accordingly.
- Ability to do the job. Most tasks cannot be completed to a customer’s satisfaction without you having sufficient technical ability/knowledge. One example is when an individual retires early and decides to run a business in a totally different sector because, without technical ability and expertise, the business is unlikely to thrive. Use the experience of others.
- Communication. This is a fundamental aspect of any business whether that is in relation to directors, employees, customers, suppliers or third parties. Without being able to communicate core values such as what the business is trying to achieve and why, securing help from others to achieve these by persuasive communication may well mean that an owner will find life terribly frustrating. They then start to think that nobody understands them… …and falls into the mistake of having an over-developed sense of self perfection by trying to do everything. Do your best to ensure that everyone involved with the business has the same focus and plan.
- Business interaction. No person and no business is an island. Every business interacts with others and achieving business success is not impossible: it merely needs to be approached carefully and thoughtfully with an overall plan in place. Some people make running a business look easy but look below the surface and you will see a team working hard, often creating a sensible environment where smart working achieves great results.
The conclusion is that we need to work together, spot the tell-tale signs where peoples’ actions may be causing harm to a business, and be brave enough to recognise that assistance is required, ideally from someone who has experience of the relevant sector, but is not drawn into the emotional stress and personal involvement where those too close to the business often find themselves, however unwittingly.
Asking for help is a sign of strength. Ignoring the tell-tale signs in the hope that they will simply go away is rarely a successful strategy. Never be afraid to ask for help.
Michael Reid is managing partner at Meston Reid & Co, an Aberdeen-based chartered accountancy practice with strong expertise in tax, audit, insolvency, corporate finance, business advisory, payroll and landed estates. The firm, based at Carden Place, has a broad range of clients, from contractors in the energy sector to large businesses with international operations.