Owners and managers of failing businesses continually make one or more of five deadly mistakes that accelerate the downward spiral to business failure.
This is often cited as the number one reason why businesses fails. It is, I think, a bit misleading. Certainly, if the business doesn’t start with, or have a good business plan including the projected amount of capital to operate the business for a defined period of time, it can be “undercapitalized”. Remember, however, that good business plans can go bad, but bad business plans never go good. In addition, my experience has demonstrated that it takes “twice as long to produce half of the projected revenue”. Think about that, and project accordingly. Usually a business is not “undercapitalized”, it just does not generate enough revenue.
Chasing higher sales at all costs
If the sales focus is too strong, management will increase sales even at the expense of reduced profits, negative cash flow and a weakened balance sheet. It’s called managing the top line and it’s usually terminal to a franchise business that is faltering. One of today’s best survival techniques is right sizing, which changes a business to the size necessary to allow the profitable delivery of its core products.
To survive today’s tough times it’s mandatory that you balance your desire for growth with the need to maintain profitability, cash flow and financial strength. The life expectancy of your business depends on your ability to adequately control costs and cash flow.
Inadequate controls over costs and cash flow
To become profitable and stay that way, managers must know what it costs to deliver their products. Often, it’s difficult to capture accurate information about costs, but it’s difficult to capture accurate information about costs, but it is vital if you expect to be profitable. You, your franchise business and your employees will lose if you manage cash flow just enough to make sure the most recently issued check will clear. Start a cash management system so you can plan ahead, make informed decisions and make the right moves before a crisis develops.
Failure to communicate with front line staff
Open communications create a common awareness of the team concept that is critical for the success of your franchise business. It lets the owner and managers share their visions for the business. More important, it allows the employees to tell top management what’s working and what’s not, as well as what they hear and see from the customers.
Losing sight of what the marketplace wants
An excellent way to stay in touch with your marketplace is to talk regularly with customers who did buy from you and with prospects who didn’t. This gives you the direct opportunity to learn why they bought, why they didn’t buy and what they would buy if you offered it. For best results, have one of your top executives make these calls. Don’t make the mistake of trying to make it a sales call in disguise.
Relying solely on input from your own people
A franchise business that doesn’t take advantage of valuable knowledge available from the Franchisor AND outside its walls is cheating itself and probably committing suicide. All too often, we see companies in deep trouble because of an ill-advised, not invented here environment. It’s fortunate that today there is many competent sources for learning about new opportunities and how to better manage existing operations. These experienced professionals can provide new information, as well as new and objective views about your business that you and your staff lack.
All in all, business if a game in which you must be aware of the “rules”, the playing environment, and have discipline, perseverance, flexibility (always have options), and vision (both near and long term).
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Franchise Paths To Success