Everyone is familiar with stories of business failure. The latest ABS statistics show that only 65 per cent of businesses operating in June 2014 are still in the race five years down the track. So how do businesses stay the course?
Get your business fundamentals right
It sounds simple, but it is easy for businesses to ignore the fundamentals, especially in the excitement of a growing customer base. For many businesses, failure simply comes down to cash flow. Guy Cooper, a qualified Chartered Accountant and MD of Wave Digital, an app development company founded in 2000, has this advice:
“Consider the terms you agree with your customers, how quickly you follow up debts, managing your fixed cost base to be as small as possible. All of these can have a big impact on cash flow, particularly for growing businesses.”
A great example of a business getting mixed up in the hype and forgetting the basics was Appster. “As has been publicly reported, Appster was a loss-making business”, says Cooper.
“A service business by definition should not be loss-making – if you don’t make money on average off every job then you are destined for failure.”
Another trap for businesses to be aware of is the tendency to do anything to win a client, even if it compromises your business fundamentals. Cooper recommends businesses aim to have 9-12 months of salaries in the bank wherever possible. This provides enough runway when things aren’t going well or where there are natural peaks and troughs in the work. Something that is particularly important for service businesses. “At the end of the day, you are only as good as your last project” says Cooper.
Focus on what you do well and do that better
Another strategy that is critical to business longevity is focus. Says Cooper,
“Focusing the service offering, focusing on the specific business development activities that make sense for the business, focusing on the style of advice that best suits the business capability.”
This also means saying no to projects or clients that are the wrong fit. Something that is hard to do, especially if you are growing a business. For instance, it may be a poor fit with the services you deliver, your brand values, culture or the style of projects your business does well.
When it comes to new hires, take your time
A critical part of any business is your people. This means hiring people that are aligned with the culture of the business that you can work with, lead and learn from. Along with fit, comes the rate at which you hire. For a growing business it can be tempting to hire quickly. However given staff are such a large proportion of the cost base, for a services business it is wise to take your time. Cooper notes,
“A phrase passed onto me from someone else in the industry is to only employ another staff member when you have enough work for two.”