Do Business Well

Excessive Overhead

I’m sure most of us would like to start our new business with all the luxuries. I’ve seen plenty who’ve tried. Start with a very nice location (and very nice rent to go with it), big payments on the first- class furniture and fixtures, and plenty of talented staffers. With all this in place, if you do everything else right, you’ll only need one hundred thousand dollars per month in sales to break even.

Ask yourself these three questions every time you want to add to overhead. Will this expense add to sales? Is this expense absolutely necessary to maintain long-term quality and service? Do I take a substantially greater risk by adding this overhead than I do by going without awhile longer?

Items like advertising are much harder to quantify by these three questions, but at least it will keep your focus on the reason for advertising; adding to sales. Other expenses, like a newer truck or a second accounting clerk, should be easier to figure using just those questions.

Insufficient time Commitment from Owner

I’ve already emphasized the dedication a new owner must make to his fledgling enterprise. There’s another slightly different aspect of commitment, though that needs to be addressed.

Many new owners, especially those who’ve purchased certain kinds of franchises or an ongoing business, have convinced themselves that their new business can be run by a manager with just part-time oversight from the owner.

While there are certain types of business (such as an ice cream shop) that may lend themselves more to this approach than do others (such as a law practice), the decision to be a part-time owner will handicap any new company’s chances for survival, much less success.

I tried to operate my car rental business that way. I hired two managers. One was a salesman, the other a mechanic. How difficult could it be to keep sixteen of twenty-two cars operational and rented? As it turned out, that was the least of my problems. Qualifying drivers, making appropriate repair decisions, one of the managers not showing up . . . now, those are problems.

I could have hired better managers, but how much can a startup afford? I could have provided better training, but training is an ongoing proposition. The decision to close that operation had nothing to do with the managers. It had to do with the owner.

At least until the business is up and running very well, and you have had a chance to thoroughly train your managers, run the business yourself.

Bad Luck and/ or Timing

Bad luck, most commonly in the form of bad timing, can be a significant contributor to success or failure.

You spend years and years in professional training. You get out of school, put in a few years working for someone else. You scrape up every nickel, give your notice, and hang out your shingle. Before you have had your first profitable month there is a radical change in your area that buries you. How about an example or two:

1. You open a law practice specializing in the lucrative area of personal injury law. Your state passes a no-fault insurance program.
2. Gynecology is your area. It seems likely that people will continue to have babies. Shortly after you open, malpractice insurance rates go out of sight. The minimum payment per month is twice your rent.

3. What could possibly go wrong for a CPA? Congress passes a new tax law that really is simple to understand by a layman. (Okay. That was a little farfetched.)

These kinds of company-killer timing problems can occur with manufacturers, plumbers, ladies’ shoe stores, or any other kind of business. What can you do to guard against such occurrences?

Become as informed as you possibly can about the industry you are entering, the economic climate of the geographic area you intend to serve, and the specific pitfalls that could confront you from the standpoint of luck and timing.

If you’re aware of certain risks, plan your backup strategy in advance. The lawyer could be prepared to provide legal services for product liability cases instead. The doctor might have a plan to switch to pediatrics. It might even be a good idea to open the business with both offerings, and only narrow the scope later as the risk subsides.

Poor Understanding of Business

Many enthusiastic entrepreneurs lack a basic understanding of the way business works. They don’t have basic sales skills. They don’t understand how to collect money owed. They aren’t knowledgeable about purchasing and negotiating. They fail to comprehend marketing strategies. They have no experience in hiring and motivating good people. The finer points of securing financing are beyond their grasp. And the day-to-day business of operating a company isn’t a part of their experience.

If you are currently lacking in any of the skills mentioned above, you will shortly receive a basic education in each of them.

Problem Location

Problem locations can include those that are good but have too high a rent or those that are too far away from customers or that lack convenient parking.

If it seems clear that your business is in trouble primarily because of location, and that a change might save it, don’t feel that because of your lease or the expense of moving you’re without solutions. The last thing you should do when confronted with such a dilemma is to merely hope things will get better. You need to move into action.

Possibly related posts: (automatically generated)
Why Businesses Fail part 2

• Serious Selling Your Business part 3
• Better Finance for Wheels
• Close Corporation
• Serious Selling Your Business part 4
• Raising a Loan
• Why Businesses Fail part 1
• Setting an All-Time Credit Record
• Why Businesses Fail part 3
• Link Exchange
• Stress Borrowers' Solution: Loan Modifications

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