How to create a sustainable business

WANT TO IMPROVE YOUR CHANCES OF SUSTAINED BUSINESS SUCCESS? AVOID THESE PITFALLS AT ALL COSTS, DAVE HOWELL SAYS

A new report from commercial insurer RSA has revealed that 55 per cent of businesses don’t survive past their fifth year. This is despite economic conditions in the UK improving recently.

“The UK is a great place to start a business, but our research reveals survival rates are low,” David Swigciski, SME trading director at RSA, explains. “The recession has had an unsteadying effect on small and medium-sized enterprises and we need to work hard to rebuild their confidence.

“The UK economy relies on a balance between start-ups and high growth businesses, but our research reveals a worrying imbalance and there remain major barriers to achieving growth. Now is the time for the government to understand what’s holding small businesses back and ensure they are coming up with the right incentives to drive growth and give businesses confidence.”

CLOSE ATTENTION

Support from central government and the banks must be forthcoming for businesses to survive and grow. Paying close attention to how your business is operating on a day-to-day basis is also vital, as Paul Mildenstein, CEO of business cash advance company Liberis, explains: “Understand the important indictors in your business and monitor them. Don’t wait for the till or order book to be empty before you act, because it will be too late. Indicators will vary according to your business, but could include website visits, the number of customers through the door, average spend, stock turn and flows/ seasonality. Create a dashboard and longer-term key performance indicators to help monitor your progress.”

According to RSA, in addition to the dichotomy of rising costs and a lack of finance, 63 per cent of business owners admit it is difficult to grow their firms. 34 per cent admit it is getting harder, while 61 per cent lack confidence in their ability to achieve three years’ consecutive growth.

In addition, 73 per cent of small business owners say the government must make it easier for SMEs to access the right information and support for growth.

Ensuring a business survives over the long term also has a great deal to do with the person running the enterprise.

John Dickinson, head of the corporate restructuring and insolvency team at chartered accountancy firm Carter Backer Winter, says: “If you don’t have a deep-rooted confidence in your business and the willpower and fitness to sustain you through the initial years, it is likely your business will become another statistic.

“This confidence does not necessarily equate to bloody mindedness. It should be tempered with the ability to listen to those who are trying to help you and the flexibility to change your plans when required. Many established businesses ultimately fail because they are not prepared to change their ways.”

Understanding every aspect of your business is at the heart of long-term success. Having the right attitude is vital, but so is the ability to spot the warning signs. The best business owner/managers have systems in place that enable them to monitor critical aspects of their business, such as cash flow and whether they are overtrading.

Appreciating the market for a new product or service and then effectively communicating its benefits to potential customers is often where businesses fail.

Jackie Maguire, CEO of Coller IP, a specialist in commercial intellectual property management and evaluation, says: “Ensure it is the right and differentiated product, at the right price, in the right location. Offer a quality service or product, but always with an eye on the bottom line. Build a good team, including if required outsourced help such as good accountants, lawyers and other business professionals.”

ALLOW FOR THE UNEXPECTED

Dr Hari Mann, a technology entrepreneur and lecturer at Ashridge Business School, advises entrepreneurs to think carefully about how long it will take to break even and then be conservative and allow for the unexpected.

He adds: “It’s important to have a clear plan of how or what your business will do and the financial projections, so you can see if you are on track and what efforts you need to make if you are not.”

Spotting the warning signs that things are going wrong is an essential skill business owners must develop. All the support in the world won’t save a business that is not built on solid foundations.

Companies that have longevity understand their marketplaces intimately. Moreover, they understand their customers and strive every day to meet their expectations. Plus businesses with long-term futures are not afraid to change.

SPOT THE WARNING SIGNS

* Not having access to accurate figures is a key indicator of trouble ahead. If you have lost your grip on the numbers, it’s time to examine the balance sheet and analyse cash flow and profit and loss. If paying wages, rent, PAYE or VAT at the end of the month is becoming a challenge, this needs to be recognised sooner rather than later.

* In the current climate, it is crucial you come to terms with the relationship you have with your bank. Businesses knocking their overdraft ceiling may face a lender that is looking to reduce borrowing or asking for additional security. Ask yourself whether the last time you spoke to your bank manager was a pleasant experience or whether you’re constantly on the phone asking for favours.

* It’s time to hold up your hands if you have dodged phone calls from creditors that are less willing to agree to amend trading terms. You may have to come to terms with the fact you are living hand to mouth by buying parts at the last minute to finish jobs or paying cash on delivery for supplies.