Lack of capital, business experience, resources, inadequate planning, and poor management structures are a few of the leading factors that account for unsuccessful business. A person having ample liquidity but no idea of the business model and is eager to venture into business is a self-invitation to failure.
According to research and studies conducted by leading management experts, 90% of startup businesses fail to surpass the three-year cycle. The fundamental reason could be umpteen in number. However, the first step is developing a realistic feasibility plan and rational budget or forecast. Without a feasibility plan, one cannot step into the footsteps of an entrepreneur. Therefore, the first flaw innate before starting the business operations and lead to an inappropriate business model. It is pivotal that the core operation of any business planning should be incepted before initiating any business proposition. It helps the business owner or the firm adhere to the roadmap that has also already been embedded in the business model
It is rudimentary that the purpose of going ahead with the business is adequately justified in the planning process. Secondly, the experience of the firm’s owner in the relevant business is equally important. The reason is that the experience will help the owner evaluate the macroeconomic scenario during the phases of a downturn or market boom. Paramount importance should be given to the business model and the unique value proposition. Thirdly, stick to the budget numbers and forecast. The growth of any business starts steadily and gradually. If the plan stipulates that the first two years of the business will not yield any profit and the owner’s capital would have to absorb the shock, then there is nothing to worry about. The owner should be familiar with the concept of project management and capital budgeting techniques, depending on what type of sector the business is into; is it labor-intensive or capital intensive; categorized into manufacturing, trading, and services?
Furthermore, the plan should include the breakeven point of the business operations. This is elemental that this is built into the budget, and proper numbers are allocated to expenses and revenue. The majority of the firms that fail to survive are due to over-expenses (other costs), which the owner did not factor in at the time of budgeting. The incurred losses eat up the capital, and the owner is compelled to shut down the operations of the business.
Careful and proper planning (non-financial in nature) should also be kept in mind to avoid any hiccups in the business. Management structure plays a very important role in augmenting the purpose of the business. The business owner must ensure that the management structure is equipped with the forte and experience relevant to the business. A proper management structure in the organization accounts for adequate human resources in finance, inventory management, production, operation, production, and recruitment. Obviously, it is entirely up to the business owner whether the decision-making must be centralized or decentralized. This function of the decision-making process has to be part of the management structure and in conjunction with the business model. If the actual numbers and figures fall within the anticipated forecast, then there is no reason for the management to get excited even if the operations are running into losses. The core competency of management anticipates that initial failures in capturing the desired market share and wallet size will eventually lead to profit in the future.
A SWOT analysis is another feature that can help the business in preparing itself against any unforeseen circumstances. It helps in identifying the strength, weaknesses, opportunities, and threats. Understanding the market share, competitive environment, socio-cultural influence, and distribution – all account for success in any kind of business. A business owner needs to be a visionary and exhibit positive behavior traits, both on the micro and macro level. Control over every aspect of business operation and financial expenditure should be the utmost priority. Must be able to envisage the potential of business growth and swiftly and aggressively, the business operation can capture a sizeable chunk of market share.
To establish a business with the purpose of only existence without a proper feasibility plan is just a sketch on the paper. As earlier mentioned, a cash-rich person without any business model, the purpose of business, and poor management structure is just another example of a business failure.