Top 2 Reasons Businesses Fail

Let’s not beat around the bush. First, you MUST have a written business plan. And second, you MUST have adequate funding.

Here’s the good news. There are many free business plan templates and free classes that force you into the discipline of planning. And there are a variety of funding sources in addition to bank financing that require no prior credit or less than favorable credit. My favorite is factoring.

Hope Is Not A Strategy For Success
Anyone who’s thinking of launching a business should read Hope Is Not A Strategy, by Ted Gee. The title speaks volumes. There’s another popular business strategy that encourages you to, “…do what you love, and the money will automatically follow.” But if you want to be successful in business, you need to embrace the idea that success consists of 1% inspiration and 99% perspiration.

And the first sweaty task is a WRITTEN business plan.

You MUST Have A Written Business Plan
Based on a study by Jessie Hagen of US Bank, 78% of businesses fail due to lack of a well-developed business plan.

I highly recommend a structured planning course that’s several weeks long, because you delve deeply into each major component of your plan. And more important you are forced to spend time each week developing out each individual section with specific detail for your business. Your instructor and class mates are an invaluable source of professional feedback from a fresh perspective.

A key and often overlooked component of the overall plan is the marketing strategy. 64% of business owners minimize the importance of properly promoting their business. I love the idea of, “…if you build it, then they will swarm to your door and beat it down.” But if you want to be successful in business, you need to embrace the idea that success consists of 1% inspiration and 99% perspiration. Yes, you just heard me say that. And yes, you’ll continue to hear me say that.

Here are just a few considerations for your marketing strategy. Studies show that we’re bombarded by thousands of advertisements each day. And your message has 1.8 seconds to intrigue your prospect enough to stop and listen to your entire message. So you must effectively communicate your product benefits to the right people in the right place at the right time. And speak to their unique needs and wants, not the product attributes that you’d like to offer. It’s all about your customer. A critical starting point is your positioning statement. It’s based on your USP (unique selling proposition), and “positions” you against your competition. It’s important to constantly monitor current and emerging competitors; and make sure you provide different benefits like higher quality, speed, convenience, better service, or lower price.

It’s 3.5 times more expensive to gain a new customer than to retain an existing customer. So include a strong RM (relationship marketing) program, which improves LTV (lifetime value), and maximizes ROI. These tactics retain, up-sell, and cross-sell your customers. And referrals are an inexpensive source of highly qualified leads. Finally, always measure your marketing tactics. Analyze results, then learn and adapt to ever changing market conditions.

You MUST Have Adequate Funding
82% of businesses fail within their first 2 years due to under capitalization and poor cash flow management.

Conduct sound financial planning and research, and understand the financial dynamics of the product category. What is your business model? How do you make money? Show your plan to a financial expert and get their counsel. And don’t hesitate to get a second opinion. Smart business people know when to ask for and take good advice.

Financing Without Borrowing
Lending criteria are tighter than ever, but there are non-bank credit vehicles worth considering. One non-bank alternative is factoring, or accounts receivable financing. This is the process of selling your outstanding receivables for cash, which can take as little as 24 hours. Then the Factor works with your customer’s accounts payable department, while you focus on your business. One reason Factors are popular is that they work with established as well as emerging firms not yet attractive to traditional lenders. Plus, they don’t routinely impose tight credit line caps like lenders.

Factoring is common in Europe and Asia, and becoming more popular in the US. This increasing consumer demand is forcing the industry to become more competitive. Here’s how to take advantage of this popular way to raise capital. Many firms such as temporary staffing, manufacturers, printers, construction, security guard and custodial firms – any group with substantial front end labor or material expense – use Factors to cover high fixed costs and support new business.

Factors consider these industries to be good opportunities, because they routinely have credit-worthy customers and invoices that rarely result in trade disputes. So as long as your customer stays current with the tax man and provides valid invoices, then most Factors see you as a routine, low maintenance candidate.

A consulting firm like Capital Consulting Group can help you evaluate a variety of Factors, and negotiate the best deal to support your long-term growth. We work with a stable of Factors, so we have the experience to translate complex proposals into apples-to-apples comparisons that are easy for you to evaluate.

Phyllis Brown is a Principal and Cash Flow Strategist at Capital Consulting Group. A consulting firm whose specialty is locating and evaluating the best factors to support your long-term growth. She provides an independent perspective, because she represents her clients – not any one factor. (212) 472-3081 direct line.