According to Bank of Ireland 66% of all business start-ups will fail in their first five years. Ulster Bank have put this figure at 50%.
One of the fundamental reasons for this, is lack of planning!
Having worked with Business Owners across the length and breath of the country for the last 14 years, we have found that a staggering 80% of Small Businesses without a Business Plan will fail in their first 5 years.
Whichever way you look at it these are very worrying statistics and we need to reverse these trends as a matter of urgency.
There are many reasons why businesses fail in Ireland. See the list below for some of the main reasons:
1. Absence of planning, direction and accountability.
2. Poor cash-flow management.
3. Lack of skills and business knowledge within the organisation.
4. Reluctance on behalf of the business owners to seek outside help in a timely manner.
5. Stress from all of the above leading to burn-out and business breakdown.
When compiling a business plan – it is crucial that Business Owners include the following elements:
• Sales and Marketing: How you plan to grow and sustain your business – be sure to set out specific & measurable targets.
• Cash-flow Management: Carry out a regular cash-flow analysis so you can plan for those cash-gaps and surpluses.
• Team Building: Ensure your have a system to hire, train, motivate and retain great team members.
• Systemise the Business: What systems could you introduce to make your business run more efficiently? Set a timeline to implement these systems!
• Time Management: Introduce a default diary to prioritise workload.
• Accountability: What KPIs have you set out for your staff, and what incentives are in place to encourage them to take ownership and be accountable for results.
In most instances any of the difficulties listed above can be overcome with some effective planning and by seeking professional advice on time. A Business Coach can provide the expertise to help Business Owners and Managers implement and execute a business plan that will guarantee survival and deliver sustainable growth.
Our vision for Irish SME’s is very simple – Teach business owners how to run their businesses better so that we can change the statistics. Imagine the impact this would have on our communities in Ireland if our SME sector thrived in the next 5 years as opposed to becoming one of the above statistics!
If you would like to learn more about Business Planning then come along to our next Business Planning Workshop taking place on the 18th June in Dublin and Cork.
Click Here for more information and to register your place.
Every business is made up of 5 key profit generating areas which we like to call the Business Chassis. These are the five things that all businesses should have in common.
- Leads. This is the total number of leads – those people who have contacted or who have been contacted by the business – over the course of a year.
- Conversion rate. This is the percentage of people who actually bought. For example, if 10 people walk through a store and three people buy something, that store’s conversion rate of 3 out of 10, or 30%, for that day.
- Average euro sale. This is the average euro amount per sale – estimated over the course of a year. It’s just an average, and can range from €5 or €10 (say for a discount retailer) and up to tens of thousands of euros (say for a car dealership).
- Average number of transactions. This is the number of purchases the average customer will make over the course of a year. Again, this can be an estimate. In a retail setting, this will probably be larger than those companies that operate in a professional services industry.
- Profit margin. This is the profit percentage of each and every sale. Simply put, if a business sells something for €100, and profit was €25, the profit margin is 25%.
The sad thing is most business owners don’t know the numbers associated to any of these five areas even though they are a critical part to running any business.
Let’s first examine “why” these areas are so critical to your business. These five components are called the Business Chassis because your entire business “runs” on these components. No business operates without them and when you consider them as a maths equation, they represent the fundamental math that leads to business growth and success or business failure and death.
The “5 Ways” formula used these components to help drive profits. See the formula below:
Lead Generation x Conversion Rate = Average Number of Customers
Number of Customers x Average Euro Sale x Average Number of Transactions = Revenues
Revenues x Profit Margins = € Profits
In your company, let’s say you have either estimated or fully determined the following numbers:
4,000 x 25% = 1000 Customers
1000 x €100 x 2 = €200,000 Revenue
€200,000 x 25% = €50,000 Profit
What does all of this mean?
Simply put, you are running a business that converts 1 in 4 prospects into paying customers, and those customers average two purchases at €100 per purchase each year – and your company enjoys a 25% profit margin on revenues of €200,000.
It also means your total profit for the year is €50,000.
So what would happen if, over the course of the next year, you could increase results by just 10% in each of the 5 areas?
Let’s do it, and then let’s take a look at what happens to your bottom line:
4,400 x 27.5% = 1210 Customers
1210 x €110 x 2.2 = €292,820 Revenue
€292,820 x 27.5% = €80,525.50 Profit
Small improvements focused on each of these five areas will have a dramatic increase in your business. Sound too good to be true? It is real- trust me!
This is a POWERFUL concept that most business owners overlook. Simply understanding how the math equation works is game-changing. Then taking the time to develop the specific strategies to use to make the improvement happen can change the future course of your business.
At ActionCOACH, we often refer to cashflow as the life-blood of your business. By managing the money that is coming into and out of your business well, you will keep your business alive and allow it to thrive. However, even the most profitable business ventures will fail if they run short of cash.
If you are experiencing cashflow problems you are certainly not alone. In fact, cashflow is one of the most cited reasons why more than half of Irish businesses fail in their first four years.
Here is just one example of how we helped one of our clients in the retail industry improve cashflow and increase sales in their business:
Our client had a very profitable retail cash business but were constantly at the top of their overdraft and could not see a solution to their problem.
When we started to work with them, one of the first things that stood out for us when analysing the numbers, was the high level of stock held –this was the core of their problem.
This particular company held over €500k of cost price stock, their belief, as with most retailers, being that they needed to have stock in place just in case.
We conducted an inventory check and found that over €350k (70%) of the stock was on hand for over 12 months. Therefore the bulk of the businesses profit was tied up in stock, and in reality 60% of this was now out of fashion and unlikely to sell at full price.
We also identified, when reviewing their sales figures, that our client was purchasing stock that they felt people wanted as opposed to what people were actually buying. For example 27% of the value of stock was one particular type of product, however this product was only 11% of sales.
The key strategy employed was to put in place a new purchasing policy to identify their A/B products – those that sell and have the best margin, and stop ordering C/D products.
Purchasing was reviewed weekly as opposed to the previous ad hoc strategy of waiting for the salesman to call.
We also renegotiated credit terms with our suppliers from on average 45 days to 60 days, which gave us more time to sell the inventory and reduce our Cash Gap liability.
Finally, to reduce the amount of stock on hand, we also opened an Outlet Store at a nearby premises to sell on the stock that was on hand for more than 12 months.
Year on year, we helped our client to reduce the amount of stock on hand held at year end by 27%. Their gross margin also increased by 11% from 56% to 62%. We also reduced the amount of days spent in overdraft from 198 to 76 days.
Our 6 key take-away’s from this case-study in order to help you to improve your cash-flow today are:
- Conduct regular stock-takes and review your purchasing on a weekly basis.
- Measure your best selling & highest margin products.
- Stop purchasing those ‘hard to shift’ products.
- Implement a strict purchasing policy.
- Reduce old stock and increase your cash-flow by having a stock clearance sale.
- Contact your suppliers to renegotiate your credit terms in order to give you more time to sell stock and reduce your cash gap liability.
If you would like any further information on how ActionCOACH Business Coaching can help you grow your business in the right direction get in touch on 01-891 6220 or email: firstname.lastname@example.org
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