Don’t be a “Stat”: Tips to Avoid Business Failure

by | Business Success Tools

Forget the upside for a moment. Here’s the best advice you’ll get all week: Always know the possible downside.

Yes, know and understand the downside and its ramifications, and then determine if you can live with them. That goes for betting at the track, investing in the hot tech stock of the moment, tofu, affairs of the heart, washing your car with a chance of rain in the forecast, and running a company.

The upside’s always pretty obvious, especially when it comes to running a small business. There’s independence, financial security, the chance to leave a legacy for your family, and maybe (if you’re really fortunate) the opportunity to pursue a career in something you’re passionate about.

The downside of your small business dream? Well, the business could fail. It happens. And how often it happens is somewhat related to the industry where your company competes. According to data from, the odds of business survival vary substantially by industry. Mining, manufacturing, service, and wholesale have five year survival rates in the neighborhood of 50%. At the less fortunate end, real estate, transportation, communications and construction companies have a less than a 40% chance of reaching the half-decade mark.

But there’s more to business success than choosing the right industry. There are issues you can figure out up front, or fix later, that will shift the odds a bit toward your favor. Here are six things to think about that can help your company avoid becoming a “small business failure stat.”

Have a Strong Concept

There’s a lot that can go wrong while you’re trying to grow your company, so you might as well have everything you can control working in your favor. That starts with the very nature or essence of what your business hopes to do.

Unless your last name is Jobs or Gandhi, you can’t count on changing the world, so make sure you’re not fighting an unwinnable battle (e.g., the Amazon age is a tough time for would-be book stores and many other kinds of retailers).

And test, test, test! Take a hard look at the reaction – or likely reaction – to your core product or service. Your dog food company might have the best production processes, marketing, and distribution channels in the industry…but if the dogs hate it, you’re out of luck.

Operate Efficiently

Are you overpaying for rent? Are you getting the best possible deal on your equipment and material purchases? Can certain activities be outsourced to contract or freelance workers? With margins narrowing in almost every industry, each expense category should be reviewed at least once a year.

Manage Effectively

Don’t shoot the messenger – please – but “poor management,” which admittedly is a bit vague, is the most often cited reason for business failures. That said, most of the “poor management” mistakes can be traced back to a feeling or sense of obligation that you, the owner, can do it all.

The truth is, that why you’re likely an expert at whatever it is that your company primarily sells or provides, you’re probably not nearly as good at the support functions (cash management, sales, marketing, operations, human resources, etc.) that can drive your company toward true growth and expansion.

Find capable people, and then manage them well.

Plan Intelligently

Obviously, you don’t just show up at the beginning of every operating year and hope for the best. A lot of businesses don’t make it because of the lack of intelligent planning. A good business plan should be realistic, up to date, and provide reasonable projections regarding future revenues and expenses.

Elements of an effective business plan include:

  •  A thorough description of your company and its goals
  •  Keys to success, along with potential problems and threats
  •  Financial projections, assembled with the help of your accountant
  •  Plans for marketing activities
  •  Labor and personnel requirements

Besides helping you establish priorities for your company and providing a road map for achieving your objectives, a good business plan is a must when approaching bankers or investors for funding help.

Treat Customers Fairly

You’ve heard it before: It’s six (or is it eight? Or four? Or ten?) times as expensive to acquire a new customer as it is to keep a current one. However the math works out, it’s obvious that your customers are critical to your company’s survival, so treat them well.

What constitutes good customer relations changes from industry to industry, but you need to figure out what your customers like best about working with you, and go to great pains to protect and leverage that advantage.

Tip: When all else fails, just make sure you take time to listen to your customers. You might be amazed at what you learn.

Manage Cash Flow Properly

You knew this was coming. Poor cash floor management, whether from faulty projections, over spending, problems with receivables, or economic factors completely out of your control, can take down your business faster than almost anything else.

Get a good “numbers person” on board early, and work with her on reasonable revenue and expense projections. Take purchasing and hiring decisions seriously, with attention to the long term health and growth of your company.

If receivables problems and slow payments are a constant problem, consider an invoice factoring arrangement with MP Star Financial.

Beating the Odds

After your business reaches its five year anniversary, your chances for continued success are excellent. But never forget the tactics and strategies that helped you make it that far.

A good concept, solid operations and management, intelligent planning, superior customer relations, and effective cash flow management stack the odds heavily in your favor – and heavily against business failures.

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Let MP Star Financial explain how factoring can help you get a better handle on your company’s cash flow management. Call for more information. (800) 833-3765, extension 150.

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For more specifics about invoice factoring, visit MP Star Financial online or schedule time to talk with a representative. Don’t wait 30 to 45 days for payment. MP Star can get funds to your account faster. Call MP Star Financial today at (877) 292-1904, extension 150.