Why Businesses Fail

Thomas Taylor - Sunday, March 03, 2019

We like saying we are no smarter than anyone else but we get to see inside a lot of businesses at the shop floor level. We have seen some failures, not as much as experts in that field but I want to share with you some things I've learned over the years. Hopefully it might help someone, somewhere. 

I love going to visit new clients. I get to test some of my pet off-the-wall theories. Is someone there to greet people? Doesn't have to be a receptionist but does someone get up and welcome new people? Do people see the boss and put their head down? And the best of all, what's on the signs around the place and in the kitchen. RR wins that hands down on all three if you're reading. Is this stuff correlated with profitability? To be honest I have inconclusive data. And brutally honest, I'm an accountant after all but it's interesting nonetheless. 

What I have come to recognise with confidence is subtle clues in the numbers that can point to bigger problems. 

The following are just a few.

  • Cashflow projections that don't include big but infrequent items like tax  
  • Continuously rushing to the next big thing hoping it will pay off "Plans that either come to nought or half a page of scribbled lines" (Pink Floyd)
  • Profit and margins that swing violently up and down each month so that everyone thinks "its just a lumpy business"  
  • A middle manager bullying accounts to change projections, or methods of reporting, to reduce transparency
  • Sales pipelines full of people they have barely met
  • Constant changes to management reporting formats
  • Thinking that, what amounts to, starting a new business is a fancy pivot to save a failing one. Smart people I have seen let the old one go. And then start small again.  

But the most common of all, I think, is when you see cashflow and/or P&L projections based on hopeful sales budgets despite falling short month after month. I have never seen a dangerous projection based on budget. This is usually the heartbreaking situation of someone caught in the headlights, and we have all been in that horrible place in some way or other. There seems to be no way out.

We all know that adversity helps build resilience but, for goodness sake, how much is enough? If you are running a business you are in the fast lane, you know you have to react quickly everyday and there seems to be no let up. Your heart and soul will be invested in it, and let's be honest, your ego. Your families safety will be dependant on it. I think, for what it's worth, there is only one path to finding a way through. Distance. Being able to step back and see things in perspective.

And for heavens sake, if there is a dangerous obstacle looming, look for escape routes. As they say to motorcycle riders, "Don't look at the tree, look to where you want to go". 

 


 

Tree photo by sergio souza on Unsplash

Truck photo by Ian Parker on Unsplash
 

 

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