Survival

Let’s get real: Inadequate Financial Management

Failure in business is unavoidable when the cash finally runs out. You close the doors and pack it in.

The failure was apparent for some time ,maybe years and is frequently the result of poor management skills.
Let’s get real.
Mahan Khalsa uses that term in his book of the same name. For me let’s get real refers to the capabilities a business must poses to survive. See diagram below and click to enlarge it.

I repeat. The business to survive must be strong in all these areas.

Today I want to address financial management. Below are problems that indicate inadequate financial management.

 

Learn how to deal with your challenges by downloading diagnostics of survival and see where the solutions lie.

 

Did you validate your business idea?

What follows is a step by step series of validation steps building or disproving the case for starting a business. This act of validating a business case will significantly increase the odds of success in a world where most new businesses go quickly out of business.

 
Identification of Business Opportunity or Need
No business should be started without identifying an existing concern shared by the stakeholders in the industry and without identifying this as an opportunity to provide a solution. For instance, say that the nearest pizza outlet is 50 kilometers away and they won’t deliver to our location. That’s an existing concern and the opportunity is obvious. If on the other hand the area is well serviced by enough pizza outlets, what’s another outlet going to do? It will not satisfy the market any better, Instead another vendor has been added to an already saturated market.

I used pizza as an example but the same applies to any service provider  such as a dentist, chiropractor, optician, physiotherapist, renovator, painter etc . The same applies to products such as car dealerships, appliance vendors. retailers in general. The […]

How To Make A Business Case For Starting the Business

How To Make A Business Case For Starting the Business
 

Businesses get started for many reasons. Some of them are not very valid. Far too often it’s to provide a job for the owner. At other times it is an entrepreneurial seizure (see M Gerber ,”The E Myth”). The future owner simply decides that enough is enough. The scenario may look like this:

The owner has a skill, a trade , or a profession and thinks this is enough to go into business on their own
The individual wants to be independent and not have a boss to deal with
The individual sees how much money the owner makes and wants the same. Why be an employee? Have it all.
The individual is unable to hold down a job. Constantly getting fired or quitting
The individual is unable to find a job so being self employed becomes a necessity
It may search for a better lifestyle with more free time
There is the personal satisfaction of taking on a challenge
It may be an attempt to build a future for the family

 

Some of the above […]

Managing Through a Financial Crisis

When faced by a financial crisis a business owner must focus on the following three important areas:

Reassessing the business model
Changing operations to reflect the new environment
Ensuring that enough cash is available

The Business Model
A business model does several things:

It explains why customers buy from your company. It’s seldom because you do the best work. Other dentists, builders, accountants etc. are just as competent. It’s not because you have the best team, as others also have great players. The reason your customers prefer your company vs. your competitors may be for a variety of reasons, such as price, convenience, location, inertia (too lazy to change), trust, or other intangible factors. For example, perhaps you provide 24/7 service and the competition does not.
It explains how you are able to charge prices that provide a profit, and how you provide enough value that customers will pay for what they receive from you.

The importance of a business model cannot be taken for granted. Environments change quickly, and the value you once provided may no longer be so special. In fact, your company’s added value […]

Industry Profitability

Industry Profitability
 

What determines the profitability in an industry?

 

Michael Porter provides several answers to this important question.  Today we will deal with one of the answers, the threat of entry.

 

Threat of entry

 

When examining the threats of entry into an existing or potentially new market, the following questions need to be raised:

 

How easy is it for newcomers to break in?

Can anybody enter?

Think of the example of another pizza parlour opening up in your neighbourhood. All of a sudden the market has more vendors than before, with everyone fighting for the same size of the pie .

 

Do  newcomers need to fear sharp retaliation from incumbents? Can the incumbents drive the newcomers out?

 

Is a minimum size required for entry? Does this provide the incumbents with a cost advantage that the newcomers cannot match?

 

Do incumbents possess  a strong brand identification? Have they created powerful customer loyalty, or will the newcomers have no difficulty taking customers away?

 

 

Whether you are already in an industry or contemplating entry, consider the above, and evaluate the threats.

 

You may need to re-examine your business model.

 

Considering New Markets?

Considering New Markets?
 

 

When considering new markets answer the following questions:

 

Does the market have high potential?

Is the market dominated by strong competitors or is it fractured among many small businesses?

Is the market easy to enter or are there strong barriers to entry? Will fresh competition find it easy to attack you ?

What is the profitability in the market? Is  it dependent on raw material costs that you have no control over and that cannot be passed on to the customer ?

 

Right  answers to the above will greatly enhance a successful entry into a new market.

 

Have You Been Blindsided and Now the Business is Stuck?

Does this sound familiar?

In the past the business had been doing OK. The results were not spectacular but it provided a living  and there was hope for better things.

Suddenly things have changed. For some years now there has been no growth, maybe even a decline.

At best the future looks no better than the present. At worst the business is on its way to closing.

You may have been blindsided

Being blindsided may mean a total destruction of your business. Suddenly a new technology, a new service, and/or a new product make your business model redundant. And you are gone. For example, we all know how digital music has impacted the music business, and how digital news has affected newspapers. More recently how on line shopping has decimated retail stores.

Jim Harris, in his book “Blindsided”, talks about blind spots that organizations have that makes them susceptible to being blindsided. He claims that we as managers are too concerned with problem solving, and not enough with problem seeing. It’s problem seeing and opportunity perceiving that will separate the market leaders from the losers.
Why do companies get blindsided? Some […]

By |February 17th, 2014|Stuck, Survival|0 Comments|