get the elephant out of the room
TRANSCRIPT
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
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