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According to Tim Cohn from Advanced Marketing Consultants in the USA, for every small business success story there are nine failures. At least that is what the statistics tell us in Swaziland too. After ten years, only one out of every ten small businesses started is still operating.
What causes small businesses to fail? Conventional wisdom says there are many factors that contribute to business failure, yet in reality there is only one reason: Mismanagement.
Mismanagement can take as many forms as the people who unwittingly practice it.
The inability to consistently take the appropriate actions to achieve a desired result is the most common way mismanagement manifests itself.
Whatever form it takes, mismanagement can be defined as a series of decisions and subsequent actions that produce an unfavorable and usually permanent result. How can business mismanagement be avoided?
More often than not, mismanagement stems from a lack of fundamental business knowledge.
To avoid becoming the next “victim” of small business mismanagement, be sure you have addressed the following three factors prior to starting a small business and implementing your plan.
Andrew Carnegie, according to Tim Cohn said the sole purpose of being in business is to make a profit.
With this simple concept in mind, every business owner should first closely evaluate his or her cost of goods and gross operating margins before they ever open their doors.
Starting a small business or attempting to run an existing one without strong gross operating profit margins is a recipe for failure.
As a rule of thumb, if you are manufacturing a product you will need at least a ten-to-one mark-up ratio between the suggested retail price of your finished product and your raw cost of goods. In starting a small business that provides services, you will need a similar mark-up ratio to pay labour costs relative to the amount of goods and services your work force delivers for their wage.
Secondly, regardless of whether you are a manufacturer or service company, your business will need to produce enough of revenue per employee to cover your operational costs and to produce an after tax profit.
Companies that produce over enough in revenue per employee are considered healthy. Recently, some “new economy” companies have begun producing sales in excess of enough per employee.
Finally, every one should consider positioning themselves in markets that are experiencing compound annual growth.
As opposed to mature industries where growth and profits are flat or declining, some markets are growing 25% to 100% annually.
Although not necessary or always practical, any business that enters a market experiencing compound annual growth will have a better than average chance of survival because customer demand will far exceed the supply of competitors jumping into meet the demand.
Granted, not every person who ventures into starting a small business has the background, wherewithal or desire to be in a “new economy” business. However, this doesn’t mean the rules for enjoying economic success have changed…
To have a better than average chance at being the one out of ten small businesses started still in operation ten years from now, make sure your business plan provides for high gross operating margins and more than enough per employee in revenue.
Positioning your small business in a market with compound annual growth rate will increase your odds of success even more.
The major problem is usually how to find a market for your products. This is where we come in. We assist entrepreneurs to advertise and to position themselves in the markets. thus we have our trade shows click for more info. (Contact Us)
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