Get the Elephant out of the Room. How not to fail in business

Presented by Markus Schwarzer

Table of Contents

Businesses fail….....................................2Companies Incorporated in New Zealand.…..…3Company Liquidations in New Zealand…........4Reasons for failure..................................5 3 Key areas ensure success……….……….………....8Summary…………......................................10About the Author…..................................11

Slide 1

Businesses fail. Fact of Life.

Not all business ventures can be successful. The reasons for failure are varied. In New Zealand 7% of incorporated companies go into liquidation. This excludes companies that just cease trading and there are a lot.There are 3 key areas that support success.

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Companies Incorporated in New Zealand(Limited companies only)

2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/1538,000

40,000

42,000

44,000

46,000

48,000

50,000

52,000

No. Incorporated

The decline in the number of new companies registered in 2010/11 and 2011/12 is mostly due to the global economic recession.

Slide 3

Source: NZ Companies Office

Company Liquidations in New Zealand(Limited companies only)

2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/150

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

No. Liquidated

The average ratio of liquidation versus new incorporations is relatively stable at around 7% per annum.

Slide 4

Source: NZ Companies Office

Reasons for failure

1. Lack of Industry Experience and KnowledgeKnowledge in one particular field does not make a business owner automatically a good business manager.2. Insufficient Start-up MoneyThe start-up typically consumes more financial resources than anticipated – cost control and effective budgeting are often neglected.3. Failure to Understand Market and CustomersLack of obtaining customer feedback. The successful business is dependent on the extent the owner/manager understands the needs of the market segment(s).

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Reasons for failure

4. Poor Employee/Management SkillsThe saying goes ‘people are the most important asset’. This is often overlooked and underrated.

5. No or poor Cash-Flow ForecastingUnfortunately most small and medium sized companies do not use cash flow forecasting.

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3 Key areas ensure success

1.Cash FlowThis is arguably the most significant success factor for any company. Very applicable to smaller and medium sized companies. Whether start-up or expansion phase, the old saying ‘Cash is King’ is as valid as ever.Cash-flow forecastingI am a strong believer in a rolling 12 months cash flow forecast. Perhaps even 18-24 months. And I still have a preference using the old Excel spreadsheet method. Why?Because it forces one to think and manually enter every possible future transaction: revenue, expense or tax.

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3 Key areas ensure success

2.Process ReviewThis goes hand-in-hand with a robust cash-flow forecast. A systematic internal activity/process analysis and review is Must-Do.How to ?The challenge for owner/managers is to allow (quality) time to review and fine tune processes. Best to use flow diagrams and keep testing assumptions.There are a number of (software) tools available that track processes, however I find the old whiteboard and coloured pens are great to get started.

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3 Key areas ensure success

3.Share the dataIt is not always easy for business owners & managers to share data, particularly financial data. It does require a little trust in your staff – but the benefits are worthwhile. Why ?The more your staff/team understands the bigger picture the better. The more people own the data the greater to motivation. It may require some training to get everyone up to speed.I have seen huge turnarounds in motivation to support a company's direction.I have seen people with relatively little formal education exploding into action to support and drive the business forward.

Slide 9

Summary

Do the 3 key areas really ensure success?Yep, It certainly will go a long way to align all the internal factors. Cash flow forecasting, process analysis and staff involvement goes a long way to put the business in a sound position.However, it is not a miracle cure. It remains vitally important is to understand customers and markets. And business owners need to be able (and prepared to) to delegate some tasks. As the saying goes: “Jack of all trades, master of none, though oftentimes better than master of one.”

Slide 10

About the Author

Markus Schwarzer is the director of CERTO.Certo is a New Zealand based company that specializes in improving profitability for small and medium sized companies.CERTO applies proven business tools that deliver real, measurable results to the bottom line.Contact CERTO for a FREE assessment of your business.

Info@certo.net.nz http://www.certo.net.nz

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