It’s a sad fact that all past indicators show that nearly 20% of businesses will fail during their first year, while less than 50% make it to their 5th birthday, and by year ten, 80% will have shut up shop.
On one hand, 672,890 new companies were registered in the UK in 2018/19, the highest number since 2009/2010, but a shocking 508,865 companies were dissolved during the same period. This gives an overall growth in UK businesses of just under 3% in 2018/19. The average age of companies on the register was only 8.5 years (with this figure declining since 2000). (See Merchant savvy’s report as at Feb 2020 – https://www.merchantsavvy.co.uk/uk-sme-data-stats-charts/ ) So why should this be?
Obviously there is no one clear reason for the increasing rate of business failures, and it would be wrong of me to suggest otherwise, but let’s look at some of the possibilities:
Of course, these will be a factor. However, these statistics are all pre-Covid 19, and thus came on the back of 10 years of economic growth since the last recession in 2008. Therefore it would be hard to suggest that the main culprit for business failures is the external economic climate.
Lack of Cash
Yes, perhaps this was a factor from 2008 – 2012 when the banks weren’t lending, but that is only a relatively short period. In my experience, there has never been an issue getting money for the right projects; in fact, many lenders were falling over themselves to give it away. For example, consider the growth of Funding Circle in the last few years.
Lack of Good People
This factor probably stacks up the most, because there has been virtually zero unemployment for the last few years. But if you think about it, there is always a movement in employees. You can entice people away from other businesses if you make them an attractive enough offer. When you consider that pay rates have not really risen in 10 years, you should be able to afford good people!
So what is the Answer?
My hypothesis is that the high rate of business failures is the correlation of 3 things:
- 95 % of businesses employ less than 10 people (Marchant Savvy report)
- 80% of businesses are run by technicians (Michael Gerber – The E-myth)
- 80% of business have no written Business Plan (HLB Mann Judd)
Put these factors together, and you have a recipe for disaster. You have technically competent people with little support, working very hard at keeping the business going. They lack the time or skill to look at their business strategically and develop a plan of how they are going to grow beyond 10 people.
Running a business of 5 -20 people is probably the hardest time in a business’s life cycle. The business is not so small that you can just get on and do things yourself, but on the other hand, you are not big enough to employ people better than you to get things done.
The Time Challenge
Time is the biggest challenge of every small business owner. There is not enough time to get everything done that needs to be done, and so they just end up firefighting. Chuck in a crisis like the one we are going through at the moment, and business owners would be right in laughing at the prospect of having a few spare hours, let alone a whole day, to write their business plan for the next year or more.
I would love to do a study of the many thousands of businesses that have failed. How many of those businesses had a business plan? How many of those businesses had a budget and cash flow projections? And would having those plans in place have helped them to survive?
I really do believe that this lack of time to plan and think strategically is the biggest factor in the demise of so many businesses. Without a clearly defined vision and plan for the future, how can you plan your route, ensure you’ve got the right team in place to deliver your goals, check your progress along the way, and know when you’ve arrived?
Maybe now you can see why the failure rate of businesses is so high. So why do people resist planning for their future success? There are many excuses that I hear from the business owners I meet. You don’t have the time, you can’t foresee the future so how can you plan, or you don’t know what you want your business to be. Maybe its just that you don’t see the value of having a plan. Whichever excuse you use, I hope I can persuade you to ditch it and get planning for your future success!
How to Get Planning
So how do you get motivated to make a plan for your business? Well, the first step is to realise that the output is the least important part. You should do a plan to get the benefits from the planning process, so really what your plan looks like at the end is irrelevant. All the packages you see that offer nice 50 page reports with executive summaries and lovely graphs have their place when you are doing a plan to raise finance or sell your business. These business plans are intended for somebody else – for you as the business owner, they are a waste of time.
When you make a plan for yourself the only stipulations are that is has to be readable, action-based (to-do-list) and have goals which are SMART (specific, measurable, achievable, realistic and timely). It needn’t take ages – I did one with a client last week, on a white board, with just 4 areas, in a little under an hour.
The key to a good plan though is that it must push you to do more and be better than you would without it. If I were planning to run a marathon next year, my plan would not be do as I have been for the last year, it would push me to do things I find uncomfortable and hard to achieve.
This is where the power of a written plan comes in, because you can give it to somebody else to hold you accountable to it. But don’t go giving it to a family member or friend to hold you accountable – they love you, and will buy your lame-arse excuses when you miss your targets. This is when you need some tough love. Ideally, give the action plan to somebody you hate, and promise to pay them a large sum of money if you don’t achieve your goal – that should motivate you! Alternatively, invest in a coach who will hold you accountable professionally.
Work ON not IN your Business
And if you are still going on about the lack of time to plan, consider this – studies have shown that by having a plan, it is easier to overcome procrastination. One minute of planning will save you up to 10 minutes in execution of the plan. How much time would that free up? And imagine what it would feel like if each day when you arrive at work, you knew exactly what you were going to be doing that day. Finally, you would feel in control of your destiny, rather than wholly at the mercy of outside factors.
Taking time to work ON your business not IN your business will set you apart from the vast majority of other business owners, and is the first step on your road to success, both personal and professional. So if you don’t have a business plan, why not talk to us? We can help you develop your action plan for business success!