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Business Success & Failure

Business Success & Failure

With 30 years’ experience in public practice as a Chartered Accountant I have seen many success stories and business failures. When I look back at the individual cases of success and failure there are, without doubt, common features to the successful business and those doomed to failure.


Successful businesses realise the importance of regular and reliable financial information which takes the form, in the main, of quarterly management accounts. It is well-nigh impossible to run a business properly and to make informed business decisions without regular accounting information which monitors profitability, margins and cash flow requirements. All the successful businesses I have worked with over the years (bar one) have had externally prepared management accounts which they have seen as fundamental to their success – now this cannot be a coincidence can it?


Some successful businesses take financial reporting a stage further by preparing One Page Plans which measure important factors to their business which are not necessarily financial – such as the number of new customers gained, the number of quotes raised or the percentage success rates of quotes.


Once this management information has been prepared and digested they take action!


Successful businesses don’t make excuses by saying ‘we are located in the wrong part of town’ or ‘everyone in the sector says they are having a tough time’ – they respond to the issues they face and do something about it.


Successful businesses prepare financial plans and forecasts and they compare actual results to those forecasts and adapt their strategy accordingly. Many SMEs consider financial plans as a waste of time bringing little benefit to the businesses however I can categorically state that the most successful businesses spend considerable time preparing accurate and meaningful business plans – you are much more likely to reach your goals if you have taken the time to document them.


Finally on the success side, you may say ‘I bet these businesses had great niche products to sell or services to deliver and that helped them be successful’ – that is categorically not the case. The successful businesses I have worked with are in the fields of employment agency, waste management, engineering and IT support to name a few. In none of these cases are the products or services in any way unique or ahead of the game; what sets them apart is the way these business deliver their product, their customer service, their attention to detail and their investment in good marketing policies.


Now you may say ‘I guess all the business failures don’t do any of the above or don’t do it very well’, and yes you would be right but there are often more factors that bring about business failures in SMEs.


Many small business owners are in need of a reality check – their train of thought goes something like this – ‘I am now a company director so I must take a substantial salary (or worse still, take large drawings without accounting properly for the salary) and I must have a top of the range car, because that is what directors do’. Directors’ costs, as with any other costs, have to be tailored to the business’ cash flow but some business owners fail to get this.


I find that in many failing businesses the management/directors do not pull together as a team with a common vision – infighting can often lead to a poor performing business. Furthermore the management team of failing businesses often do not meet regularly to discuss business strategy and performance; and if they do meet they often don’t record an action plan which they revisit at their subsequent meeting.
 


 

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The information provided in all of our blogs reflects only a narrative of some elements to consider on the topic. The blogs do not contain considered legal or accounting advice and should not be relied upon as advice. Please see our website's terms and conditions for full details of our disclaimer. If you are interested in obtaining advice, please contact us and one of our accountants will be happy and able to advise you on your own particular circumstances.

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