Business Coaching

Strategy Failure: Common Mistakes In Strategy

Strategy Failure - what causes strategies to fail and is it just down to some common mistakes in creating and implementing strategy?

The RBS bank has just posted the biggest loss in UK history after making a bad acquisition, Lloyds TSB has been forced to go cap in hand to the government after agreeing to merge with HBOS to help Gordon Brown "save the world" and retailers are lining up to be the next pre-pack administration.

These are all big businesses, professionally managed and I am sure that they all had elaborate business strategies.

So what causes strategy failure?

The problem can be split into two:

1. Strategy development - either no strategy has been developed or a poor strategy, doomed to failure has been created; or
      
2. Strategy implementation - the strategy itself is sound but the implementation of the strategy failed.   

Common mistakes in strategy development

1. Focusing on tactics not strategy. Strategy explains the "why", tactics are the "what".
    
   
2. Not understanding what customers really want. Customers should be the main focus of your strategy since it is they who will decide if you win or lose in the market-place.
    
   
3. Failing to be unique and clearly differentiated in your market. Being the same creates competitive stalemate and customer indifference.
    
   
4. Failing to monitor the external environment for opportunities and threats.
    
   
5. Not understanding the motivations, strengths and weaknesses of competitors. I see too many strategic plans which assume growth in market share without explaining why customers should switch and how competitors will react.
    
   
6. Not being clear on exactly how you will earn a profit. Definitely a problem from the dot.com boom but it is still clear that many business people haven't created a sound business model.
    
   
7. Not identifying and managing risks - strategic, financial and operational. Are you listening banks?
    
   
8. Not creating a culture which encourages innovative thinking and action.
   

Whilst many of the biggest blunders may come from a flawed strategy, there are many well established techniques for you to develop a potentially effective strategy.

Perhaps the biggest issue is that of how competitors will react to your actions to dominate your market which comes down to two issues:

• Can they retaliate?
  
  If you manage to introduce a sustainable advantage, competitors may not be able to retaliate. They may not have the skills or the cash.
  
  
• Do they want to?
  
  It may seem strange when you start thinking about competitive reactions and how for example if you reduce price, they will reduce price, they may not be that committed to a fight or it may not make long term economic sense to destroy industry profitability.      

Game theory is a very useful technique for looking at competitor reactions and the payoffs available in the market.

Common mistakes in strategy implementation

This is where it does get more difficult since you have to get your staff, customers and suppliers to take action.

A difficult challenge when senior management teams struggle to take action consistent with the strategy.

1. Failing to put your strategic objectives and logic in writing.
    
   
2. Failing to regularly refer back to your strategic plan. The memory does play funny tricks and the agreed strategy may not be as you remember it.
    
   
3. Not communicating your strategy to your team of employees. If you don't tell them where you are heading and how you will get there, how can you expect their actions and everyday decisions to be consistent with your strategy?
    
   
4. Not sitting down with each employee or group of employees and explaining what the new strategy means to them and how their role has to change.
   
   If your new strategy is improved customer service, shouldn't your staff know what improved customer service means in their jobs? And if they don't have the skills, provide training.
    
   
5. Using rewards and incentives which conflict with your strategy.
   
   If you change strategy, you must change the incentives since people will do what you reward them to to do.
   
   Not having incentives that support your strategy makes like tougher, having incentives which conflict with your strategy means that you will fail.
    
   
6. Not measuring progress on your strategic objectives. If it is important, measure it.
    
   
7. Failing to develop the right business business which can deliver customer benefits and value at a low cost. This means focusing on both efficiency and effectiveness.
    
   
8. Failing to periodically revise your strategy and particularly if the external environment is unstable.

It was General Eisenhower who said "no plan survives contact with the enemy". Implementing a rigid plan is impossible because you can't predict how all the important players will act.

That's why it is important to know the overall objective and broad guidelines since they should influence everything done.

What do you think?

Have I missed any big reasons why business strategy is often a failure?

Do you diagree with me on any of the points?

Please leave a comment if you have anything to add to this topic of strategy failure.   

Business Turnaround Tips From Ted Nicholas

I was browsing through the Simpleology website and found this business turnaround tips video from famous direct marketer, Ted Nicholas.

Business Turnaround Tips

Despite all the success Ted Nicholas has had in his working career, he admits to two failures. It happens to even the best.

The video looks at:

1. Mindset issues
    
   
2. Dealing with creditors
    
   
3. The importance of being honest about your situation
    
   
4. Cutting costs
    
   
5. Making cash injections into the business
    
   
6. Focus on marketing and sales - the only part of your business which generates cash rather than creates cost.
    
   
7. The three ways to grow any business - focus on all three and your business will prosper provided you keep your costs under control.   
   

You can watch the video for free at Business Turnaound Tips  

Spike Humer Business Turnaround Model

Some months ago I reviewed the Seven Day Business Turnaround Kit from  Mark Joyner and Simpleology.

One of the best videos from the turnaround experts Mark Joyner brought in was Spike Humer and he delivered this exceptional practical advice for any business - no matter what size - on this business turnaround 14 minute video.

   

Overall I thought the 7 Day Business Turnaround program was very good for generating turnaround through information marketing over the Internet.

I believe that most businesses have opportunities in this area because of the impact that "marketing as education" can have but I also know that many businesses will reject the idea, especially those without significant interest in Internet marketing.

The problem is that if you are in your last few days, you have very little else you can do. The Internet gives entrepreneurs with knowledge to create very quick gains provided they have an opportunity mindset and take action.

How Do I Stop My Business Losing Money

This conversation follows on from "My Business Is Losing Money" and looks at the issues when the caller had done some analysis to determine if their cash crunch was due to profit or cash issues.

Caller "Paul, thanks for the advice the other day on how I can understand more about why business is losing money. I have done the analysis and found that the big increase in my overdraft is due to a number of causes. My customers do owe me more money and I have a couple that looks as if they are bad debts. I have also taken more out of my business than I usually do because we had a few things done at home. But you are also right about stretching our payments to suppliers so I am pretty sure that my business is losing money because it is making a loss".

Me "Thanks for doing the exercise. Facts are so important to understanding how to diagnose and correct business problems connected with losing money. It is a good idea to get your accountants in to confirm the diagnosis and to prepare interim management accounts but it will cost money."

Caller "I have been reading your article "How to increase profits" which has got me thinking about the different ways to make more money but I don't see many quick ways to turn things around. Everything I think of that can help seems to have a downside."

"There is no magic bullet. If business was that easy, everyone would be making big profits but many operate at close to subsistence and would lose money if the owners took a realistic salary. I am pleased that you are starting to see the financial consequences of your decisions. What things did you have in mind?"

"I know that I have to get more customers and to get the existing customers to buy more but I also know that I have to reduce my costs. I was thinking about my sales force. I have a couple of sales people at the moment, neither doing much business. One idea was to recruit someone who could do the job properly but I don't know whether that should be on top of the two I've got, one in one out which will increase my costs or both out."

"I've seen troubled companies go both ways. Reduce their sales force and save the costs of salaries, benefits, cars and expenses or to recruit extra sales people who they hope have the right skills.

You need to cost out the options and the likely results to see the profit impact.

First, try to find out why the existing sales people are not producing the goods.

Are their skills weak? If so, would they benefit from sales training and coaching?

Is it that they don't put in the effort? That places huge question marks over them but perhaps you need to find better ways to help them motivate themselves. If you don't have a sales bonus, you need one and if possible based on margins so they don't get rewarded for cutting prices.

Is the product a difficult sell? A common sales excuse is that the price is too high but that may be true if your competitor has a much better product for a similar price.

How quickly do enquiries turn into orders and cash for your business? How long does it take to build a relationship with a customer? Remember if you take on a new sales person, their costs start immediately, the income may be months away.

What else were you thinking about?

"You already touched on it. I am not sure whether I am pricing right. Should I increase my prices or reduce them?"

"I see pricing as the number 1 lever for profit so I am glad that you are thinking like this. Price too high and you are restricting sales, price too low and you are leaving a lot of money on the table.

This is a huge topic but you need to look at what has been happening with your prices. Are they being forced down by genuine competitive pressure or are your sales people using price flexibility as an easier way to make the sale than justifying value?

How do your prices compare to competitors? Do your products provide good value for money?

What happened before when you reduced or increased your prices?    

Do price changes affect the size of the overall market or just transfer business from one competitor to another?"

"I don't know."

"OK you have some work to do there before you can even think about working out whether you will gain more from increasing or reducing prices. My general view is that reducing prices on existing business means that you have to sell much more if you are going to make money but it can help bring in extra incremental business and convert non-buyers into buyers.

What else are you thinking about?"

"I don't know whether I should be increasing my advertising or reducing it?"

"It depends on whether your advertising is effective. This comes back to the issue of being disciplined about measuring performance. Any adverts that don't generate the right kind of leads which can be converted into profitable business should either be stopped (to save money) or improved. It would be crazy to stop a marketing method which works.

The only proviso in your situation is that you can't afford to invest in building long term relationships at the moment. For financially secure businesses, I would be saying that you can afford to lose money on the first transaction if you will make much more over the customer lifetime.

You can't afford to do that.

What else?"

"I know I need to reduce my overheads but I'm doing as many transactions as I did before so I'm thinking that cutting back on customer service and accounts staff will just get me into even more trouble."

"A very good point. Some people like to cut all costs by 10% or 15% but I believe that you need to take a more strategic view and see the big picture. It doesn't make sense to save money and make it more difficult for customers to buy. Nor does it make sense to cut back on accounts staff when you need to be increasing the effectiveness of your credit control and, because of your financial position, you need more information about your business, not less.

Look at your costs. Can you find the easy pickings. Things that you buy but don't get value?

Can you put the squeeze on your suppliers?

What areas don't make a valuable contribution? Are there any where the demand for the services has gone down?"

"This all sounds very tough."

"It is. Much easier to stop a business getting into trouble than to turn it around when it is losing money.

While it may not be as glamorous as sales and marketing, this is why I think it is so important to have a good understanding of your finances from the very start and performance measures in place.

Seeing the results of your decisions allows you to build a better mental model of your business and means that your business intuition is much better shaped.

As you have a reasonable sized business, I recommend that you find yourself a part time finance director who will get your finances into shape, explain why you are losing money and help you to plan and implement a way out of your financial difficulties. You need someone experienced and very financially aware who will stand in the trenches with you and fight.

If you had called me some months ago, I would have suggested my business coaching for you and it may be relevant for you in future to build your business skills but at the moment, you have to focus on gaining financial control of your business.

Stopping Your Business Losing Money

If you have a business which is losing money, you face a huge challenge but it is a learning experience that will stay with you for the rest of your life.

In business, there is always much more to do than time to do it and this problem s exaggerated in a turnaround situation.

Getting control of your numbers is essential. Everything else flows from them as you manage your business first for cash and second for profit.

This is why the turnaround industry uses involves many accountants.

Every decision has effects and you need to think what those effects will be before making the decision and then confirm that you were right or to learn why things didn't go as expected.

My Business Is Losing Money

Caller "Help. I think my business is losing money."

Me "Why do you think that?"

"My bank overdraft has been increasing for the last few months and for the last four to six weeks, I've struggled to stay within the overdraft limit. It's gone up by about £50,000 in the last six months and I don't know what to do. We've not had this problem before."

"Do you have monthly accounts prepared?"

"No I just have the accounts done annually."

"Do you have any management information you monitor regularly?"

"I look at my sales each week and month. They've been going down a bit. Not much much but definitely it's down on last year. That's another reason why I think my business is losing money."

"Sales going down isn't a good sign but do you know if your customers have been paying you as quickly as before?"

"Don't know."

"OK. I won't sugar coat this at all. Your cash crisis is serious but before deciding what to do, you need to find out why you have such a big cash out flow from your business.

Cash can reduce over a period for a number of reasons and some are easier to cure than others.

1. Your business may be making a trading loss thanks to your lower sales, any price reductions you may have made to increase sales and cost increases.
    
   
2. Your customers may be taking longer to pay in general or you may have one customer who has become a real problem and not paid their invoices for months. You need to look at your debtors list every week to see who hasn't paid and decide what you are going to do about it.
    
   
3. Your stock may have gone up. As your sales are down it is easy to buy at the old rate and allow stock to rise.
    
   
4. You may be paying for your supplies faster but I think that's unlikely. When you are close to your overdraft limit, it is normal to stretch your payments to creditors and that can even disguise just how bad the real problem can be.
    
   
5. You may have made some unusual payments which have forced down your cash flow. Have you bought some new equipment or a vehicle? Have you paid a big tax bill? Have you increased the money you take out of the business?"

"I don't know why my business is losing money."

"This is a common problem in small businesses but you have made life more difficult by not having a proper set of performance measures in place and which you look at regularly.

You need to understand whether this is a "lack of profit" issue or a pure "cash flow" issue.

If you had monthly accounts prepared and explained to you, the danger signs would have been seen earlier and when you recognised a problem, you would have taken steps to cure it.

The actions you need to take will vary depending on if this is a lack of profit problem or a careless cash flow management.

What you can do quickly is:

1. Summarise your cash receipts payments over the last year into major categories and see if you can spot trends or unusual items.
    
   

2. Look at the money your customers owe. The computer report you want is usually called an "aged debt analysis" which shows how much money is outstanding from each month. If possible print off reports for each of the last few months - it's not always possible because the data is updated. See if the value of overdues have increased. Also look at who owes you money and find out what has been done to collect the money. If there are problems or disputes, resolve them. Otherwise press for payment. With big values, a call from you as the boss rather than your bookkeeper or credit controller can work wonders.
    
   
3. Look at the money you owe your suppliers in a similar way to point 2 above. Many more problems may be hiding in your creditors but you should at least make sure you understand the true situation.
    
   
4. Look at any stock you have. Does it look more than normal. Check what incoming orders there are and delay any items you don't need. Also consider returning stock back to suppliers. They won't be happy but unless you have custom made items, they would rather have the stock back than have a large debt outstanding which won't be paid. For other items, can you put a special offer together for customers to sell the stock? It is well worth considering although at this stage, don't sell stock you expect to sell in the next few months at cost or below but do get rid of stock that won't sell for years.

My natural reaction is for you to try to get the money out of your business rather than going to see your bank manager and asking for an extension to your overdraft. Following the credit crunch, it is difficult and expensive to get extra money from banks and you don't have a good story to tell.

Do these things and then come back to me if you think your problems are not in the cash control side but you are trading at a loss."

If You Are In This Position Of Losing Money

If your business is losing money or could do soon, I would urge you to make sure that you understand the financial situation.

Depending on your situation and the size of your company, talk to your accountants, find a part time finance director or start a finance coaching program.

You need to have the right measures in place which look across profit and cash and you need to make sure that you have enough confidence in your financial understanding, that you can see the financial consequences of your decisions.

If you just use the bank balance as the guide to your financial health, it can change very quickly and catch you unaware of what is really happening. Then when you are close to using up all of your cash, monitor bank balances often understates the growing problem because the credit you take from suppliers is stretched. When that reaches breaking point, you have nowhere to go.

If your business is in serious trouble and you don't think you will survive over the next few weeks, you must seek specialist insolvency help urgently. There are nasty penalties if you continue trading beyond the point of no return.

The conversation is continued in "How Do I Stop My Business Losing Money"  

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Business Turnaround In A Week

I came across a blog posting which examines Gordon Ramsey's turnaround method used in the TV programme Hell's Kitchen to turnaround struggling restaurants within one week.

Gordon Ramsey is a very well known chef and TV presenter but I was impressed by the seven step approach to business turnaround explained in Using the F-Bomb to Guarantee Your Success by Troy White.

The seven step turnaround process is:

1. Work out what you are really selling now. Gordon Ramsey has a meal in the restaurant and pays close attention to the existing situation in terms of staff, food, other customers and overall atmosphere.
    
2. Find out who is behind the current disaster. Gordon Ramsey interviews the key players and assesses how much they care about the restaurant and want to improve.
    
   
3. Find out what the customers really want. Who are the regulars (if any) and what do they like/dislike? What do they want? What are successful restaurants in the area doing better or different?
    
   
4. Find the signature dish which the restaurant can become known for. What does the chef love to make which is excellent? Make sure it is on the menu and promote it.
    
   
5. Simplify the menu by cutting down on the number of choices. In simple terms variety adds complexity in the kitchen which increases cost while reducing quality but variety also over-complicates the customer's choice.
    
   
6. Systems are the key to ensuring consistent delivery of great food.
    
   
7. Feet on the street marketing to offer free trials of the signature dish to tempt customers to (or back to) the restaurant.

Seven simple steps which deliver  turnaround within a week for the restaurant businesses featured in Hell's Kitchen.

I have not watched the TV programme because I find the foul language inappropriate but I understand that the restaurants are revisited some time after and the turnaround continues to be successful in about 90% of cases.

That is impressive and while the "seven days" in the turnaround in a week may have benefited from the Gordon Ramsey word of mouth factor, it is good to see the the ongoing success.

What we have is a generic turnaround process which could be translated to many other different types of businesses.

Business Turnaround In A Week v the Eight Pillars Of Business Prosperity

Just as with my own Eight Pillars of Business prosperity, it starts with getting a firm grasps of "where are we now". It then moves on to look at the actions and motivations of the owner and the key members of staff [mirroring my own Pillars 2 (Vision to action) and Pillar 7 (Leading the team)]

Next we have three steps which concentrate on establishing the market position - what do customers want, what is our speciality and reducing the clutter to focus on the speciality (which is my Pillar 3 your market positioning).

Step six looks at systemising the business (my pillar 8) so that you deliver on the promises you make in your marketing (which creates the reinforcing loop of customers coming back - my pillar 6) while step seven generates the leads (my pillar 4).

You may have noticed that the only pillar missing is pillar 5, converting leads to customers but that is really embedded in the other steps.

The Seven Day Turnaround Kit

Regular readers will know that I have been extensively reviewing a product called the Seven Day Business Turnaround Kit from Mark Joyner and Simpleology but the approach is very different.

In the Simpleology course (which is excellent), the program is broken down into days:

Day 1 - Establishing your motivations and the facts (similar to step one in the Gordon Ramsey approach) - (see my turnaround review day 1)

Day 2 - Getting your house in order - this day is focused on reducing your stress by systematically working through your costs and challenging yourself to reduce wherever you are not receiving immediate value. It then teaches you ways to tackle pressure from your creditors who are demanding payment. (see my turnaround review day 2)

Days 3 to 5 are about creating Cash Injection Missions into your business by making full use of the assets you have (e.g. fire-sale of excess stock), identifying opportunities in your intangible assets to create information products (from what you know or from what the people in your network know) and taking them to market. (see my turnaround review day 3 and days 4 to 6)

Day 6 is about raising emergency cash in TINA situations (There is no alternative.)

Day 7 prepares the business for ongoing development once cash to cover two months operating expenses has been created.

This is an alternative approach which focuses on cash in the seven day turnaround period and then later takes you through a business building process.

Conclusion - Business Turnaround In A Week

It is interesting to see the difference in approach and if you find yourself in the unfortunate situation, I hope that it gives you ideas.

The restaurants in Hell's Kitchen benefit from having the focused attention of such an eminent expert as Gordon Ramsey who will command instant respect from the restaurant owner and the staff. He also brings an expert critical eye to the restaurant and removes any issue of "rose tinted spectacles " from the owner. Seeing the problem and the genuine situation is the first step in the turnaround process.

The examples also have the focus of the TV film crews and no one wants to be seen in a bad way which will energise them to take action although there will be some resistance.

It is a different situation when you are trying to turn your own business around. It is difficult to see things as they really are. We all get socialised to our existing situations and what other people see as bad and unacceptable, we can see as normal. This reality check is one of the big advantages in bringing an independent third party in to have a look at a business.

The emphasis also moves to you and only you. No one is pushing you or telling you what to do and the stress is internal from your own fears rather than external pressure.

Why Entrepreneurs and Small Businesses Fail

Rich Schefren has been quiet recently but he's back with an interesting blog asking "What Is An Entrepreneur" which celebrates two years since he published the Internet Business Manifesto. In this free report (details blow) he identified that the big problem for many businesses is they are run opportunistically rather than strategically heading towards a clear vision.

His blog included the following causes of business failure which I thought you'd want to know:

According to a research study published by John Murphy of Murphy Associates, cited by SCORE - he main reasons why businesses fail include:

• Lack of a solid business plan - 78%
   
• Being overly optimistic about sales and required funds - 73%
   
• Not recognizing or ignoring weaknesses and then not seeking help - 70%
   
• Poor cash flow management skills/understanding - 82%
   
• Have insufficient or irrelevant business experience - 63%
   
• Not pricing properly - 77%
   
• Not understanding or ignoring the competition - 55%
   
• Hiring the wrong people - 56%
   
• Not promoting the business properly - 64%

It is a sobering list so let's go through each in a little more detail

Small Businesses Fail Because They Don't Have A Solid Business Plan

Why does having a business plan help?

Because it forces you to think through the logic of your business - the what, the how, the when, the why, the where and the who and then commit it to writing so that you have a permanent record to go back to and review.

A business plan is a way to hold yourself accountable.

The big advantage of "being your own boss" is that you don't have to answer to anyone but yourself but it can be a fatal flaw if you don't do a performance appraisal on yourself.

Do you remember that small business guru Michael Gerber talks about the three parts of a small business owner - the entrepreneur (the business creator), the manager (the implementor) and the technician (the worker)?

So why don't you put on one of those hats and assess how the other roles have been performed?

Ask yourself whether as manager you have been supported by the entrepreneur creating a clear sense of direction and the guidance necessary to build a working business.

If you wear the entrepreneur's hat, has the manager been effectively implementing your ideas? Has the technician been effective and efficient? If not why not.

So why don't small business owners produce a solid business plan?

1. It's seen as busy work - but thinking before taking purposeful action is the most valuable thing you can do. Brian Tracy says that every failure comes from not thinking enough before you take action.
     
   
2. You only prepare a business plan when the business is starting out or you need a bank loan - just not true. The best businesses have a rolling business plan which is regularly reviewed and updated. It re-confirms the vision and goals and updates the action plan based on tests, results and any actions and reactions from customers and competitors.
    
   
3. You don't have the time - sorry this is a poor excuse - the real answer is that you don't make time.
    
   
4. You don't have the skills - my advise is that you shouldn't over-complicate it but if you need help, there are plenty of business planning guides and I even offer one for free - see better business plans
    
   
5. You don't think it's important - but that's not what 78% of business owners in the survey now think. They have learned the hard way that business planning is an essential activity for businesses. I will keep saying this - it is so much better to try an idea out on paper and find that it loses money than to try it out in real life and lose a fortune. Business planning will not only stop reduce the risk of bad decisions, it will help you to implement your great ideas more effectively.

Small Businesses Fail Because They Are Too Optimistic About Sales and Required Funds

There is a delicate balance between having the confidence to back your business idea and give it a real go and being so optimistic that you are certain you have a sure-fire winner without seeing the pitfalls, difficulties and constraints.

The world is tough and customers do need a compelling reason to buy from you. Writing your business plan helps you to:

1. Find your unique market position where you are better than competitors in ways that matter to customers.
    
   
2. Decide how you will spread your marketing message
    
3. Face up to possible constraints and skill shortages so that you take action to improve
    
4. Focus on your underlying assumptions as you work your way down the sales funnel in terms of numbers and time lags.

Many of the business plans I see are too optimistic in their timing as business owners assume that prospective customers will leap into action at the first contact. It's just not true. Jay Conrad Levinson (Father of Guerrilla Marketing) says that it takes on average nine customer contacts to turn a name into a customer.
This optimism then causes cash to become a problem. Because sales forecasts are too optimistic, the underlying cash forecasts have cash receipts flowing into the bank account faster and to a higher value than is likely to happen. This false picture then shows that the business can afford to splash out early on expenses which it should defer until the business concept is proven.

Small Businesses Fail Because Owners Don't Recognise Weaknesses And Then Not Seeking Help

I mentioned Michael Gerber earlier and if you have read his great book "The E Myth Revisited" you will know that many small businesses are started when the entrepreneur has an entrepreneurial seizure and wakes up with the idea that he could start a new business.

There is no acknowledgment of the fact that the person has never been taught how to develop a business but just an inner confidence - "It must be easy because so many other people do it."

There seems to be a reluctance to admit any knowledge gaps and to seek help from business coaches and other business professionals.

I understand that it can seem expensive but being able to tap into extra knowledge and experience is invaluable.

There is even a reluctance to subscribe to programs such as Scott Hallman's Small Business Growth Club which provides outstanding value on how to build a profitable business.

Small Businesses Fail Because Of Poor Cash Flow Management

Never forget - cash is king.

There is an old banker's mantra that is well worth remembering:

Sales turnover is vanity

Profit is sanity

Cash is reality

For more details about cash flow forecasting see the Importance of cash and cash flow forecasts.

Small Businesses Fail Because The Entrepreneurs Have Insufficient Business Experience

I mainly covered this item in the "not recognising weaknesses or asking for help" point above but lack of business experience means that many people start a business without knowing what is required to start a business.

In other words they don't know what they don't know so they can't ask for help.

Small Businesses Fail Because They Don't Price Properly

Pricing is where the rubber of your business strategy hits the road as your customers have a direct choice between your product and price combination and your competitors.

Price too low and you win orders but don't make any profit (remember the banking mantra).

Price too high and you don't make any sales.

To make it worse, every buyer loves to negotiate a lower price.

If your product is great value at £50, it is an even better buy at £35 so you can expect to come under continual price pressure as the buyer fishes for a discount. It is good buying practice but you need to be able to resist and have the confidence that you have communicated your benefits/value/price combination effectively in your selling.

For more information about pricing, see my free report How to price what you sell

Small Businesses Fail Because They Don't Understand Or Ignore The Competition

Even in business plans from big companies who should have known better, I have seen ambitious growth plans where the company is clearly hoping to grow at a faster rate than the market. The only way to do this is to take business away from competitors and you have to be prepared for them to react.

As a child what happened when you tried to take a toy away from your brother or sister when they were playing with it? I bet they put up a fight to keep it or at least shouted to Mum for help.

It's the same with competitors. If you take what they think is theirs through aggressive price competition, they will react and try to pinch at least one of your customers.

Sign up to the free report with my newsletter to find out more about how to win profitable business away from competitors.

Small Businesses Fail Because They Hire The Wrong People

Michael Gerber warns about the dangers of building a people dependent business when the entrepreneur should be building a business based on systems. While I agree with systemisation I still believe that the quality of people is an essential factor in building a great business.

The problem is that it is difficult to recruit. For all the interview techniques and personality tests, you don't really know what you have until you make your decision and see the person working in your environment.

Brian Tracy has an expression "hire slow but fire fast". 

That makes much more sense than the easier "hire fast and fire slow" which saddles businesses with uncooperative, uncommitted and poorly skilled employees.

If you find that you have made a recruitment mistake then take action sooner rather than later. Brian Tracy teaches a technique called zero based thinking which involves asking yourself the question "Knowing what I know now, would I still hire this person?"

Small Businesses Fail Because They Don't Promote The Business Properly

I have been writing a recent set of articles that look at common marketing mistakes based on the ideas of master marketer Jay Abraham.

In these four articles I explain that many businesses don't do the market research, don't develop their own unique selling proposition and use the wrong type of advertising which doesn't give them results that can be measured and improved.

Reduce The Rate Of Business Failure

This blog is packed with ideas, tips and extra resources to help you to improve your business. Please the information in here and the blog will continue to grow and develop.

As well as my own ideas, I bring you the ideas of my favourite ten small business gurus together with other ideas as I come across them.

I started with a reminder of Rich Schefren's Internet Business Manifesto. Even if you don't have a business that trades or promotes itself in any way through Internet marketing, much of the report still makes very thought-provoking reading. You can download your free copy of the Internet Business Manifesto.

If Your Business Is Already In Trouble

If you have landed on this page because  your business is already in trouble, please see my article Business coaching in tough times which looks at the options in terms of self help, business coaches and consultants and  turnaround managers.

Importance Of Cash & Cash Flow Forecasts

I cannot over-emphasise the importance of cash and understanding your cash flow forecast, especially when times are tough.

There is an old banking mantra which sums up the very essence of financial control:

"Turnover is vanity, profit is sanity but cash is reality"

Business owners and managers often make the mistake of focusing on sales growth thinking that it will automatically lead to profit, only to discover at the end of the year that price reductions have caused the margins to collapse.

Even more serious is that as a business grows it often consumes rather than generates cash.

More stock is needed if goods are sold. Debtors/accounts receivable increase much faster than creditors/accounts payable. Extra capital expenditure may be needed to provide the extra infrastructure and equipment for the growth.

It works the other way around as well.

As a business contracts and sales get smaller, the business can incur losses but generate cash.

Financial Control - Turnover, Profit & Cash

You can't use your turnover as a reliable guide to your financial health and that's why the banking mantra tells you to look at profit and cash.

For information about profit, you look at the Profit & Loss Account. For more information, read Understanding Financial Statements although I will be looking at the Profit & Loss Account in more detail in future articles.

Today you will learn to understand, monitor and control the cash aspects of your business.

As with Profit, you should look at historical cash flows and also try to predict the future with a cash flow forecast.

There are two main formats:

1. Receipts & Payments
    
2. Reconciliation from the Profit (this will be covered in a separate article)

The receipts and payments format is the easiest to understand and the best for day to day control of cash although the other format explains the common question "We made a profit but where has all the cash gone?"

Receipts & Payments

The format is simple.

Receipts minus Payments equals Cash Flow.

Cash Flow plus the Bank Balance at the start of the period equals the Bank Balance at the end of the period.

Sources Of Receipts

1. Receipts from cash sales which may also include debit card and credit card sales
    
2. Receipts from credit sales which you will collect from your trade debtors/accounts receivable after a credit period
    
3. New bank loans
    
4. New cash introduced from the business owners, either as equity or loans
    
5. Sundry receipts

The credit sales are the items which cause the timing of cash flow to differ from sales by a period which is often between 30 and 90 days and sometimes even longer.

Credit control is a subject of a different article but the amount of credit you give to your customers is a critical factor and must be tightly managed. Sales people should not have the authority to agree delayed terms because they are not in a position to understand the consequences.

In general I have a dislike of bank loans since they can be used to cover up symptoms of poor profitability and bad cash management. Banks also expect security for their money and this puts the business owner's personal assets at risk. If you need a bank loan, I recommend an ebook "The Secrets of Getting Your Bank Manager To Say Yes"

Sources of Payments

In many ways payments are the opposite of receipts but payments are made to a wide variety of stakeholders like suppliers, employees and the government.

1. Cash payments including debit and credit card payments
    
2. Periodic payments, standing orders and direct debits
    
3. Payments to creditors/accounts payable which will reflect the credit you take from your suppliers/vendors
    
4. Net wages and salaries paid to employees
    
5. Payment of employee taxes, social security and benefits
    
6. Business tax payments on the profit of the business
    
7. Value added tax / sales tax
    
8. Capital expenditure
    
9. Interest payments on bank loans and overdrafts
    
10. Repayments of bank loans
     
11. Dividends payable to the business owners
     
12. Other payments

Credit will be available from suppliers but extended terms often require careful negotiation as it may be seen as a sign of financial weakness.

Payments for employees in the UK are split between the net payment made to employees in the month and the associated PAYE tax and national insurance/social security which is paid by the 19th of the following month.

Value added tax is an issue if your company is over the VAT limit and will have to be added to your sales but the VAT charged and paid on your purchases can be reclaimed.

Unless much of your sales are outside of the scope of VAT (eg insurance), zero rated (e.g. basic food) or you export, your VAT on sales (known as output VAT) will be more than your input VAT (on purchases) and this has to be paid to the taxman. There are a number of different schemes so you need to talk to your accountant or HM Customs & Excise to make sure that you use the scheme which best suits your business.

Corporation tax or business tax is easily forgotten about in the rush to make a profit. Again talk to your accountant about arranging your tax affairs in the most beneficial way whilst staying on the right side of the law.

Forecasting Cash Flows

Cash needs to be managed and it is best done by using a cash flow forecast to make sure that you have cash available throughout the year.

It is far better to talk to the bank about an increase in overdraft or an extra loan well in advance of the need for the money. Going to your bank manager at the last minute when you have found out you can't make the payroll payment this month sends out a clear message "You are not in control of your cash." This is not something you want to be telling your bank manager and you will have a very difficult meeting.

Long Term Cash Forecasting

I like a long term cash forecast which is linked to a forecast Profit & Loss Account for the next twelve months. It is also best to have a Forecast Balance Sheet to complete the picture and check for errors and inconsistencies.

The long term cash flow forecast will be for 12 months and you should prepare it before the year starts and then update it periodically if the underlying forecasts prove to be inaccurate.

The long term cash forecast is particularly important if you have a business where sales fluctuate sharply across the seasons or where you have very "lumpy" payments and/or receipts.

It is less important if your transactions are small and regular and one month is very much like another and if you have plenty of cash, you may be able to use simpler controls.

Short Term Cash Forecasting

I like the discipline of short term cash forecasting to cover the next one to three months where you can take the information from your sales ledger/accounts receivable and purchase ledger/accounts payable together with current payroll expectations and other known payments.

The level of detail required will depend on the level of cash crisis. I like to see a forecast by week but if your business is in a cash crunch, the forecast will have to be daily to make sure you don't commit yourself to non-priority payments on the assumption that receipts may come to allow you to meet the payroll.

The next step is to monitor how the actual receipts and payments compare with your forecasts for the month. Building up a monthly record of actual payments and receipts together with notes on unusual items, helps you to prpeare your long term forecast the following year.

The short term cash flow gives you the ability to manage your cash on a day to day basis and if customers are paying slower than expected, you can decide to hold back your payments to your suppliers.

Cash Is King

I am writing about business turnaround in other articles around this one so it is always important to remember that a business is bankrupt when it runs out of cash and can no longer make the payroll or pay suppliers.

Cash is also black and white and not the shades of grey which Profit can be.

Profit depends on estimates and the accounting policies which are used so talk to five accountants and they may give you five different profit numbers.

Cash is reality and you can see it in the receipts and payments.

7 Day Business Turnaround Kit Simpleology

Over the next two weeks or so I will be testing and reviewing the 7 Day Business Turnaround Kit from Mark Joyner and Simpleology.

I am taking longer to go through this course than the seven days because;

a) my business is not in a crisis so the program is not my highest priority

b) I am having to write the reviews as well as work my way through the materials and

c) I don't want my blog to be taken over completely by the 7 Day Business Turnaround Kit in particular or business turnaround in general.

Scary Times Could Be Ahead

Each year tens of thousands of small businesses in the UK fail and many more struggle to survive while operating at little more than a subsistence level.

Working harder, longer hours for less money seems to be the curse of many entrepreneurs and owners of small businesses.

But I am gloomy about the UK and Western world economies for the next eighteen months. With disposable incomes down and credit more difficult to find, consumer spending has to reduce.

If it is tough to build a sustainable business in the good years, just imagine the problems there will be in a recession.

This will be my first recession with my own business, even though I have been trading for thirteen years but I remember the 1990-92 recession when I was a senior manager of a much bigger business. I told the story in Business coaching in a recession.

I had never seen profit fall out of a business so quickly. We had a six month swing from making £100k profit per month to at the worst stage losing £90k in on month before employee termination costs and other restructuring.

A Time Of Unbelievable Pressure & Strain

If you find yourself in the situation where your business is failing and it may only have weeks to survive and recover, you will know just how much pressure and stress you can face.

Often it is not just the business at stake.

Business loans are secured on personal assets like your house.

Business worries become personal worries about how you can provide the basics for your family.

You are scared and confused.

You may have times when you rush around like a headless chicken, starting one task and then another but never finishing any.

But at other times you may be paralysed by fear. Your mind freezes and you can't think straight.

You are overwhelmed by what has to be done but you don't know what has to be done first.

You need help!

You Are One Of Many

It's easy to see your business problems as all your fault and that you are alone.

But many other people are going through exactly the same problems and emotions at the moment.

Some will take action and turnaround their business but many won't. The fact that you are reading this says that you are an action taker who is looking for guidance.

That's a great start to rescuing your business.

The 7 Day Business Turnaround Kit

I want to introduce you to the 7 Day Business Turnaround Kit from Mark Joyner and Simpleology.

It could be just what you are looking for to provide focus and clarity to your actions so that you do what is necessary while you still have a chance to save your business.

You could pop straight over to the 7 Day Business Turnaround Kit sales letter and read it for yourself or you could carry on reading as I try to highlight some of the important points from the letter.

Mark Joyner Has A Great Copywriter

Mark Joyner is the author of Mind Control Marketing, The Irresistible Offer and The Great Formula and has probably forgotten more about marketing than I'll ever know

but

I think he has slipped up with his headline (although Mark may still be testing and you may see a different headline) so please don't be put off if you read:

"How Does A Full Time 2nd Grade Teacher Struggling To Make $417 A Month Online. Triple It in 4 Days... And Eliminate Worry About Having A Cash Crunch Again?"

My problem is that the headline may not pass the relevancy test for you and you may dismiss the 7 Day Business Turnaround Kit without properly reading the copy because you're not a teacher, your problems are much bigger than $417 per month and because you don't market on the Internet.

I believe that would be a big mistake.

Later on in the letter it says about the program:

"It's the same thing a Fortune 500 would do, just made so bloody simple a 2nd grade teacher could do it" and yes, there is a testimonial from the teacher.

I bet your business is somewhere in between the teacher and the Fortune 500 (the largest companies on the US stock market).

The Generic Business Turnaround Process

Whatever the size of your business, there are four things that you have to do:

1. Stop the bleeding - both time and money.
    
2. Stop the stress - move from uncertainty to clarity.
    
3. Inject the business with cash - Mark Joyner's tip is to aim for 2 months of operating expenses to give you time to breathe.
    
4. Refocus the business.

Read the list again.

Doesn't that make sense to you even though you don't know how to do each stage?

That's what a turnaround is and the 7 Day Business Turnaround Kit has been developed to help you do it.

Look Who Has The Risk

When your business is in trouble, we both know that you can't afford to take any risks and at the moment you have two major risks:

1. Wasting time when you should be taking purposeful action.
   
   I like the idea that the 7 Day Business Turnaround Lot is intensive but it is designed to be completed in a very short time period. It creates a momentum of its own but it's a manageable amount of time.
    
2. Wasting money you can't afford.
   
   It's one thing buying something as a gamble when you have a stash of cash but I admire Mark Joyner's approach to his marketing of the 7 Day Business Turnaround Kit.
   
   Yes you have to surrender your payments details but you get to experience the 7 day program before the money is paid AND you have a 90 day money back guarantee (please check the sales letter - it is correct at the time of writing but these things can change as Simpleology test the offer).
   
   It's also a terrific price if it does succeed.
   
   No downside and virtually unlimited upside.
   
   This is a deal that is only possible because the program is systematised and man-hours have been designed out of it.

The Next Review

If you can wait because your business isn't in crisis, then my next review will appear in a few days time.

If you are already in a crisis but you're not ready to give up the fight until you've had one final throw of the dice, the 7 Day Business Turnaround Kit could be exactly what you are looking for.

It's an interesting idea isn't it? Try it, then buy it.

Related postings:

Business Turnaround: To Thine Own Self Be True - Day 1 facing up to your issues and understanding what is required

Cost cutting in your business turnaround - Day 2, getting your business in order

Business turnaround: Generating cash urgently - Day 4 to 6 three fundamentally different approaches to raising cash.

Business Health Check - Small Business Early Warning System

A business health check can provide an early warning to entrepreneurs and owners of small businesses that things are not as right as they appear in the business.

I have just reviewed Carol O'Connor's book "Business Health Check" and while it has some good points, I believe that the concept has been under-developed.

I remain convinced that the business health check process is a great way for looking at business problems and identifying the underlying causes. In fact I believe that every entrepreneur should health check their business every year if performance is not up to standard and every two years if the business is progressing well.

A business health check can identify current business problems which are adversely affecting performance and also act as an early warning system about future business problems.

Is A Business Health Check Seen As A Cynical Way To Sell Business Consultancy?

I have a business health check, in fact I would go further than that, I have a great business health check and I'll explain the underlying logic later.

It is my preferred diagnostic tool when I first get involved with a business and certainly with a business of ten or more employees. It provides structure to the review process and my business health check is linked to a semi-automatic report generator.

But unfortunately I meet some resistance from prospective clients and it hasn't been the effective lead generator I expected.

I now believe that a business health check offered by a business coach or consultant is viewed suspiciously by an entrepreneur as a cynical way to sell consultancy services rather than a problem identifier.

I can understand that.

Holding your hand up and admitting that X, Y and Z are problems is admitting that you do need to do something.

But whatever a free business health check says about your business problems, it doesn't mean that you have to do something about it or that you have to buy from the business coach or consultant providing the health check.

Just as you take a medical health check and you may be advised to take more exercise, eat more fruit, lose weight, stop smoking and cut back on the booze, it doesn't mean that you will follow the advice.

On my last health check I was told that I needed to lose about a stone in weight but I didn't do much about it. Now I need to lose about two stone! Ignore a problem and it tends to get worse.

You are an entrepreneur because you are a natural decision maker and want to be in control. I recommend that you see the business health check as an input into how you run your business. It will confirm some of the things that you already knew but it may tell you about other issues that you hadn't appreciated but which are easily cured.

Do you agree? Do you reject offers of a business health check from a business coach or consultant because you don't want to be "sold"?

What To Look For In A Business Health Check?

If you are to take advantage of a "no obligation" business health check from your local friendly business coach, then you need to make sure that it is worth your time and effort to complete it.

It is often said that the majority of small business owners and entrepreneurs are focused on tactical business decisions rather than the strategic business issues so I would encourage you to look for a business health check that combines a strategic approach of looking at your industry or market and your competitors together with the tactical and practical issues that you do or don't do.

My Business Health Check

At the moment my business health check is only available to clients and prospective clients for one-to-one coaching which restricts it to businesses in the UK (and it is at my discretion). I will explain how I believe a business health check should be put together.

The business health check should be intellectually sound and comprehensive rather than a random set of questions.

My business health check is based on work of two American academics, Moulton and Thomas who were studying business failure and identified four pathways to decline but then didn't really advance the idea. I believe this was a missed opportunity which I seized upon as soon as I read their academic paper.

There have been many studies into the causes of business decline and failure but much of it has identified individual factors where there is considerable confusion about cause and effect. It's like saying that someone died because their heart stopped beating when the cause was the bullet in the brain.

Moulton and Thomas hit on the ingenious idea that some business problems and causes of decline are external to the business and some internal. Nothing too complex there but they started looking at the way their sample companies reacted to the external environment.

Basically they identified whether the market which the businesses they were studying was growing or contracting and that the sales of the businesses are growing or contracting as well.

This gave mutually exclusive four categories which are easy to understand:

1. Market contracting, business contracting - this is the classic situation where a business is struggling because its market has been lost, probably because of the advantages of new technologies and substitute products. Think of the music industry and the move from long player vinyl to cassettes to Cd's to mp3 recordings.
    
2. Market contracting, business expanding - the market is in disarray but one business is growing sales but not profits because it has been sucked into a mutually destructive competitive war, usually on price while trying to maintain or increase sales volumes. It is winning the battle but losing the war because of the big losses incurred and the devaluing of the product to a commodity to be purchased on price alone.
    
3. Market growing, business contracting - despite the easy competitive conditions which growth markets often provide, the business has lost its competitive advantage. Prospective customers find it easy to find a reason not to buy from the business and buy from a competitor instead.
    
4. Marketing growing, business growing - this should be the route to profit but poor management policies and habits are causing the business to miss out on opportunities available.

Moulton and Thomas discovered that the largest category they were studying was the last - the companies who were growing in a growing market but were effectively spurning the profit they could be making.

My business health check is based on this typology with the four pathways to business success or failure:

1. Market attractiveness - growing or declining
    
2. Market competitiveness - growing or declining
    
3. Competitive advantage - increasing or decreasing
    
4. Management control - effective or ineffective

While the Moulton and Thomas categorisation is mutually exclusive, the underlying causes of business decline are not and a firm may suffer from one, two, three or all four problems.

In 2003 I did a study into the causes of financial distress with the help of 58 firms of accountants in the UK. Each accountant was asked to select one of their clients with ten or more employees who they considered to be in a distressed condition and completed a questionnaire:

1. 69% were suffering because their market was in decline
    
2. 55% had seen prices depressed as competitors competed primarily on price
    
3. 53% had seen their competitive advantage erode
    
4. 62% had weak management controls

In only one case were the business problems considered to be caused by something outside of these categories and often two or more of the issues were seen as major problems for the poor performance.

This validated the use of the four pathways approach and my business health check was then developed to pick up on the factors which were likely to contribute to these factors.

Since then the business health check has been used and developed and the semi-automatic reporting function added providing standard advice if particular questions were flagged as issues but leaving the overall review and main points to be brought together through a review of the information and my judgement.

The two external factors, the market growth and competitive nature of the industry fall back on the strategic management concepts of Michael Porter's Five forces model, the product life cycle and various other strategic models.

The assessment of competitive advantage is very much based on the potential sources of cost advantage (or disadvantage) and the ability to offer differentiated customer value which is meaningful to particular groups of customers.

The assessment of the management style, planning and control is much more focused on the internal actions which happen every day, week or month and include whether the business knows how it is performing on a regular basis, whether it has a business plan, whether goals are cascaded down the business in a meaningful way and a host of other issues.

The health check is offered to potential UK clients (between ten and 100 employees) on a no obligation basis. If you would like a copy please email me at paul@plancs.co.uk with a few details about your company - name, website, number of employees, type of business, location and I will send you the business health check. If suitable I will send it to you.

For companies who meet certain criteria, I will also offer the free business health check diagnostic report. Even if you don't qualify, you will find that working through the business health check and answering the questions honestly will make you think about your business in a different way and that can lead you to taking action to correct a potential business problem before it becomes serious.

Business Development Questionnaire

While I am not offering everybody my business health check, I can offer a 33 page Business Development Questionnaire PDF to allow you to assess your business.

In the report there are sections on:

1. What should the business do for you?
    
2. Management issues
    
3. Team members
    
4. Organisation structure
    
5. Team member review
    
6. Team member job evaluation
    
7. Your organisation's commitment to customers
    
8. Products and services
      
9. Customers
    
10. Customer segmentation
     
11. Competitors
     
12. Competitive analysis
     
13. Suppliers
     
14. Financial systems
     
15. Environmental trends, opportunities and threats.

This is ideal if you want to be your own business coach or consultant but I must warn you, at 33 pages it is not for the faint hearted and it will ask questions that you don't know the answers to.

You can get this free Business Development Questionnaire by entering your name and email address below. This will then send you an email asking you to confirm that it really was you who wanted the information.

Your email details are kept confidential. I hate spam as much as you do. Every email you receive from me includes an option to unsubscribe if you ever believe that I am not giving you value for your attention.

Business coaching in a recession

Business failure & the role of management

Preparing for a recession Changing customer demands

If you wish to know more about the original Moulton and Thomas academic work rather than my interpretation and use of their four pathways, the details are:

Moulton, W. N.; Thomas, H. (1996) Business failure pathways: Environmental stress and organisational response, Journal of Management, 22 (4) 571-595