Monday, 18 August 2014

The Number #1 Reason Why Businesses Fail

The Number #1 Reason Why Most Businesses Fail – What 40 Years of Real- Life Experience Tells us.

What if I could tap into over 40 years of business experience and find the Number #1 reason why businesses fail? Would knowing this reason help existing and new business owners so they don’t make the same mistake? Would you also like to know?
I was recently at the Worrells Solvency & Forensic Accountants Conference on the Gold Coast and I posed that exact question to Ivor Worrell, Senior Partner.  Ivor started the firm 41 years ago and he has seen nearly every reason why businesses fail and go broke. He has an intimate knowledge and a wealth of experience, gleamed from many years of helping numerous businesses across all industries.  So I posed this exact question to him:

“Ivor, from your 41 years of experience in Insolvency, can you tell me from that 41 years of experience, the Number 1 reason why businesses fail?”

Ivor’s answer was straight and to the point.  He said the number one reason why businesses fail was: “Bad Management”.
Ivor said that most businesses that go broke lack basic financial management practices such as:
  • ·      Accurate, regular and up-to-date financial reports and
  • ·      Simple monthly budgets and cash-flows 

It’s not Rocket Science but most business owners who get into difficulty do so because of a lack basic, fundamental financial management practices so that they can make better, informed business decisions on a daily basis. Businesses that fail tend to “fly by the seat of their pants” and rely on “gut feel” rather than adopting sound financial management practices. Doing a simple budget for the next 12 months is a start, yet so many businesses are run with no financial targets or performance measures.
I completely agree with Ivor and can add my take that businesses tend to fail because their owners do not listen to sound, professional advice.  I have a business failure formula that goes like this:

Size of Owners Ego = Risk of Failing

I have told countless business owners in the past how to improve their businesses but because of the reasons of pride and ego, they have chosen to ignore me.  The result?  Within the 12 – 18 months their businesses collapse and they lose their life savings, their family home, and all their pride.  Put your ego aside and listen to professional advice if your business is in trouble. Act early, swallow your pride and get professional help early rather than leaving it too late. With early intervention, most businesses can be saved and put back on the right track again.

If you want to know what makes a business successful, then you need to read my book, “Break the Entrepreneurial Struggle”. Click here: Business Fixer to order your copy and you will receive it within 24 hours:

1 comment:

  1. I read Matthew’s comments about our Worrells Conference, with great interest. Matthew correctly blogged that I identified a lack of useful and timely accounting, as major contributors to business failure. But in my view that’s not the full picture; good accounting not only helps keep a business afloat it materially contributes to the extent of success. To restate the concept, the better the accounts the greater the profit, cash flow and stability of the business.

    On a related but slightly different point, unfortunately many accountants (actually most accountants) do their clients a disservice because of the way the accountants present financial statements. Clients don’t need and don’t want a mass of confusing detail and supporting schedules. What they want and need are presentations which highlight the most important variable controllable costs and their relation to turnover. Some accountants need to get innovative rather than slavishly follow “standards”.

    Ivor Worrell


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