Why do businesses fail? According to the Bureau of Labor Statistics, only about half of all businesses that started in 2010 survived to see their 6th year. Clearly, many businesses are successful. However, many businesses fail as well. Every experienced small business coach and manager knows that there are many risks for small businesses, but new owners may frequently overlook them.
Managing any enterprise is difficult, and growing a small business is even more of a challenge. There are many factors to consider. Indeed, there are nearly as many different reasons for a business to fail as there are failed businesses. However, some reasons are more common than others. By knowing why businesses may fail, you can be able to pro-actively mitigate some of the risks.
Ineffective management is perhaps the most common reason a business fails. A lack of communication, poor planning, little focus and sub-par standards; there are many elements that go into ineffective management. In the construction industry, for example, project management issues can quickly overwhelm even a focused and determined building company.
Making Business Personal
We all have lives outside of our businesses and work. Sometimes, we let our personal challenges bleed into our business efforts. This most often results in sub-optimal performance and even complete failure. When it comes to business, make sure you keep it to business. Make sure you keep your ego and paranoia in check, as both can quickly sink even an otherwise well-managed company. On the other hand, staying detached can help you grow your small business even through personally challenging times.
Marketing is vital for essentially every growing business, including those in the construction industry. It’s important to have a strong marketing plan in place. Make sure you pay special attention to crafting a top-notch business referral program. Having trouble formulating one? Consider hiring a business consultant or small business coach. A professional’s expertise can help a new (or any business, for that matter) business go a long way.
Poor Financial Planning
Cash flow is critically important. Many businesses go bankrupt not because they aren’t producing revenues, but instead because they failed to plan their finances properly. Cash crunches can crush even a would-be successful business. On the other hand, proper finances will help you grow your business.
Pay close attention to equipment costs, rental, day-to-day expenses, and travel costs. In the construction industry, among others, these costs can quickly add up. Furthermore, make sure you have enough cash on hand to cover material and labor expenses.
Lacking an Emergency Fund
It’s important to establish an emergency fund to cover costs should something happen. You need to have enough cash on hand to maintain operations for a few months, at the very least, and to cover major equipment repairs and other costs. Every business wants to put money to work, but having an emergency fund is vital.
You cannot skip accounting. You have to keep track of your numbers for financial planning purposes, tax reasons, and also to simply measure how your business is performing. Sound accounting will help as you grow your small business. Yes, accounting can be a pain, but it is vital for every business.
Going Too Far, Too Fast
It’s tempting to jump at every opportunity. This is especially true for growing businesses. However, you need to make sure that you don’t stretch yourself too thin. Also, don’t expand into new markets unless you are prepared to potentially suck up losses. Meanwhile, make sure you stick to your expertise. A residential construction company doesn’t need to rush into road construction, for example, even if opportunities are there.
One of the most uncomfortable topics for many business coaches is nepotism. It’s understandable that mom or dad wants junior to run the family business. However, it’s important to ask if he or she is ready. When it comes to managing your business, you need to promote people based on their skills. In other words, you need to be: “meritocratic.”
Not Keeping Up With the Times
Industries are frequently disrupted by new technologies, methods, and changing consumer demands. The construction firms of today look much different from those of earlier times. Make sure you’re up-to-date on the most modern methods and contemporary market conditions.
When markets are hot, it’s relatively easy to drum up business. When markets are shrinking, only the most well-known and highest-performing companies will survive. This is true in every industry, including construction. If the market is shrinking, you’re going to have to triple down, paying extra close attention to the above issues, among others.
You Don’t Have to Grow Your Construction Business on Your Own
No person is an island, and no owner can handle or grasp all of the challenges that come with running a business. This is especially true for businesses working in complex fields, such as the construction industry. Growing businesses are, likewise, challenging to manage because resources are often tight while demand is high.
So make sure you stay on top of all of the above. Many of these challenges are avoidable, and even the unavoidable ones can be mitigated with proper planning. Need assistance with that planning? Consider reaching out to the experts at Small Business Growth Partners.