get the elephant out of the room
TRANSCRIPT
Please get the Elephant out of the Room. How not to fail in Business
Markus Schwarzer
Businesses fail. Fact of Life.
Not all business ventures can be successful. • The reasons for failure are often predictable
(and preventable)
• Every year 5% of New Zealand incorporated companies go into liquidation
This excludes companies that just cease trading and there are a lot.
Slide 2
Businesses fail. Fact of Life.
However, there are 3 Key Areas that help to succeed, and to move the
out of the room.
Slide 2
New Zealand Companies Incorporatedand Liquidated
0
10,000
20,000
30,000
40,000
50,000
60,000
2012 2013 2014 2015 2016
No. Incorporated Liquidated
Financial Year to 30 June
Slide 3
Source: NZ Companies Office
New Zealand Company Liquidations (Limited companies only)
The average ratio of Liquidation vs. new Incorporations over the last 5 Years is relatively stable at around 5% per annum.
Yet most companies don’t go through the Liquidation Process.
• Or Receivership
• Or Voluntary Administration and companies
• That just stopped trading. MOST of Them
The biggest part of the disappearing companies remains untold.
The exact size of the ‘Elephant’ in the room is unknown.
Slide 4
Reasons for Failure
1. Lack of Industry Experience and Knowledge
2. Insufficient Start-up Money
3. Failure to Understand Market and
Customers
4. Poor Employee/Management Skills
5. No Cash-Flow Forecasting
Slide 5
Reasons for Failure
1. Lack of Industry Experience and Knowledge
Knowledge in one particular field does not make a business owner automatically a good business manager.
2. Insufficient Start-up Money
The start-up typically consumes more financial resources than anticipated – cost control and effective budgeting are often neglected.
3. Lack of insight into Customers Needs
Lack of obtaining customer feedback. The successful business is dependent on the extent the owner/manager understands the needs of the market segment(s).
Slide 5
Reasons for Failure
4. Poor Employee/Management Skills
The saying goes ‘people are the most important asset’. This is often overlooked and underrated.
5. No Cash-Flow Forecasting
Unfortunately most small and medium sized companies do not use cash flow forecasting.
Slide 6
3 Key Areas ensure Success
1. Cash Flow
2. Process Review
3. Share the data
Slide 7
3 Key Areas ensure Success
1.Cash Flow
This is arguably the most significant success factorfor any Business. Particularlyfor smaller and medium sized companies. Whether start-up or expansion phase, the old saying ‘Cash is King’ is as valid as ever.
Cash-flow forecasting
I am a strong believer in a rolling 12 months cash flow forecast. Perhaps even 18-24 months. And I have a preference using the old Excel spreadsheet method.
It forces one to think and manually enter every possible future transaction: revenue, expense and taxes.
Slide 7
3 Key Areas ensure Success
2.Process Review
Process review goes hand-in-hand with a robust cash-flow forecast. A systematic internal activity/process analysis and review is a Must-Do.
Challenge
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 the old whiteboard and coloured pens are great to get started.
Slide 8
3 Key Areas ensure Success
3.Share the data
It 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.
Business owners need to be able (and prepared to) to delegate some tasks.
Slide 10
The AuthorMarkus is a Financial Professional, specializing in Process Improvement and Financial Reporting.
He also works on a voluntary basis to improve Financial Literacy for Indigenous People In New Zealand.
Contact Markusemail [email protected] 0064 27 973 2236