Why do some businesses fail?

In tough economic conditions it is imperative to examine why businesses fail. Whether the business is a franchise, existing business or home business, there are common causes for business owners within the best franchise systems and with the best of intentions to fail.

The most prominent reason a business fails is that the business quits before they allow themselves enough time for success. Anticipating immediate results in any business is a recipe for failure. Expecting immediate return on any investment is unrealistic and makes for an unhappy and unproductive business owner. Under-capitalisation is a key factor in the downfall of any business. Beginning a business without sufficient capital to fund marketing, office space, and any other costs associated with beginning a business is similar to building a house without a foundation. When my wife Avril and I started our franchise coffee store in Oxford Street, Sydney we banked for six months of loss until the business broke even. It was a smart move as that is what it took for us to break even.

Lack of a business plan is simply not prudent. Make one and then keep a magnifying glass on the business. It is crucial to measure everything and keep a close eye on a day-to-day basis. In our business we would asses our sales, labour, promos and cost of goods, on a daily and weekly basis, we also would produce monthly and mid-monthly P&L's, as well as quarterly, half yearly and yearly P&Ls. The old adage "what gets measured gets managed" rings true - without measurement of the business, it is not possible to manage it effectively.

Not advertising or not promoting the business in the appropriate markets can be quite detrimental to any business. It is important to evaluate where the key market is for a business and focus on that. Re-evaluation of the current market trends as I well as results from marketing efforts on an ongoing basis is crucial. Believe it or not, some business owners have a difficult time with self promotion. The reality is if you are not going to promote your own business then who is?

Quite often businesses that are not successful get bogged down with the details of the business itself. There is a measureable difference between motion and results. Being busy in a business does not make it successful. It is all about being effective rather than efficient; when you feel like you're bogged down focus on your core business, the 20 per cent of your business that delivers 80 per cent of your results. The reason why many businesses fail is giving up. The power and decision to do so lies within us, therefore it is important to have a good support network and ensure that you invest money and time into yourself through training, coaching and personal development work.

To be a successful business owner requires a long term vision for the business, passion, having your values aligned with your business and focusing daily on results-oriented activities. Most importantly a business owner must have a determination to never give up.

Tony Melhem is a Director of Franchise Council of Australia

This article appears courtesy of Franchising Magazine