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Identifying the Hidden Reasons Why Businesses Fail

April 16, 2012 | Comments: 0 | Views: 93

Here's a dismal and startling fact for business owners: "70 per cent of small businesses go broke before their 10th anniversary," according to the U.S. Small Business Administration.

The most important question that owners and executives need to ask is "why?" Without knowing the "why," you can't make the critical changes that will allow your business not only to survive, but to prosper. Naturally, there are many reasons why a business might fail, including economic downturns, reduced demand for a company's core products and ineffective marketing and/or advertising.

However, there are many other silent killers that sink otherwise sound businesses every year. The good news is that these company killers can be corrected if identified early enough. The bad news, however, is that most business owners and executives simply don't know where to find the source, or more frequently multiple sources, of their losses. While they may realize they're not as profitable as they should be (their bottom line tells them that), no matter how many times they crunch the numbers, a full understanding eludes them.

The key thing to remember is that looking at your financials alone is insufficient. Numbers are merely the symptoms; you need to find the disease causing the symptoms. While the financial picture is an essential place to begin your quest, stopping at a financial audit means you'll miss the more subtle yet chronic sources of loss in your business. And in a tight economic environment, that can be the difference between being in business and being out of business.

Some of the issues I see consistently that adversely affect a company's bottom line include having the wrong staff or consultants on board, trusting too much in ineffective management or partners, undervaluing what one is providing (for example giving away too much information to customers without being properly compensated) and even employee theft.

So where do you go from here? I certainly wouldn't recommend executive business owners not perform a yearly financial audit. Rather, I'd add four other highly revealing audits to the mix: business systems, relationships, values and quality of life. These audits, when employed consistently and evaluated properly, will reveal a comprehensive picture of both where a company is losing money and - more importantly - what needs to be done to reverse the trend.

Additionally, the values and quality of life audits will help ensure your business life is in harmony with your personal values. And that's important -because happiness is an underestimated component of business success.

Lourdes Gant, Professional Auditor and Business Advisor

For more about five business audits, and to download a copy of Five Ultimate Business Audit Checklists, visit

Source: EzineArticles
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