Top 10 reasons most small business are unprofitable
There are approximately 2.3 Million businesses registered in Australia currently. A whopping 97% of those businesses are classed as either a small or micro business with annual turnover of less than $10 Million. And, unfortunately, the vast majority of these over the next five or ten years will either fail, plod along with no real return on investment or the owner will ultimately throw in the towel and call it a day. Despite this, the Micro and Small business sector continues to stay viable in Australia due to
the large amount of people who have a dream to own their own business.
Before you get to work on growing your own small business, I would like to ask you three different questions:
1 - Why is it that a staggering 97% of businesses can’t seem to grow past the size of a micro or small business?
2 - Why is the failure rate in the Micro or Small Business sector so high?
3 - Why do so many Micro or Small businesses fail to reach a point of desired, predictable and sustainable profit levels?
Let’s face it, considering the statistics, it seems like a good idea to find out why this happens and what you can do to avoid similar mistakes. Here’s a great quote that sums it up nicely:
‘The Common Denominators of Successful Entrepreneurs Are That They Make A Habit of Doing the Things That Unsuccessful Entrepreneurs Avoid or Simply Don’t Do‘.
In my ten years of helping owners grow and improve their small businesses, I have found some of the key reasons for businesses failing to grow and create sustainable profits to include:
1 Under Capitalised: Simply not enough money to invest in their business or they simply run out of money while they try to make the business profitable (they burn through while learning to make the business profitable)
2 Lack of Knowledge and Skills: The owner(s) lack the required skill levels to run a business or be an entrepreneur. Furthermore, many owners underestimate the amount of compliance issues they will face.
3 Too focused on Growth ahead of Profits: Many owners get fixated on Growth rather than profits, and when they do this, they end up growing the wrong way (in a non-repeatable manner)
4 Lack of understanding of the Businesses true capacity: Too many owners don’t have a clear handle on what their business capacity is. This is critical before planning for any growth.
5 Lack of understanding of the financials and also choosing an accountant that isn’t right for their business and situation
6 Going into business in the first place for the wrong reasons: Too many owners start businesses for emotional reasons and don’t spend enough time planning or investigating their chosen market.
7 Unclear on what they want: Many owners are unclear on what they want from their business which results in confusion in terms of what size to grow to and why
8 Business Model(s) that are very difficult to scale:
Many owners start a business around a model that either relies far too heavily on themselves or too heavily on highly skilled employees that are hard to find. As a result, the business is at the mercy of its owner and its team which creates too many variables as the business tries to grow
9 Lack of visibility in the business: Most Small businesses don’t have targets in place that will (if achieved) realise their plan for growth and profit. If they do have targets in place, most don't have reports to track results and they don’t keep themselves or their employees accountable.
10 Employees who don’t know what to do: Every team member needs to know how exactly how they fit in, what they are responsible for achieving, how they contribute to the business. They also need to be provided with the right tools and systems. Too many owners don't create repeatable processes and put their team under too much pressure, the team are then forced to improvise and the business becomes unpredictable and is put under too much pressure.
Eric J. Gregory is the Author of ‘Would you like Profits with that?’ and the founder of
Gregory Business & Trades Coaching which specialises in working with SME owners/entrepreneurs and their team members to create ‘Quality Lifestyles’ through ‘Business Success’. We do this through a wide variety of Coaching Membership Programs, Workshops/Training Courses and proprietary Business Software in the Cloud. For more information about Eric and his company please see http://www.gregorybusinesscoaching.com/