Small businesses make up for most businesses in an economy. Statistics from SBA show that two thirds of businesses survive for at least 2 years and 44 per cent survive at least for four years. This is a very big percentage of failed businesses that maybe could have been avoided with the employing the right business practices. A business should be properly managed to ensure its continuity. In our business, we intend to make sure that it will be successful by dealing with the failure mechanisms that affects small businesses. There are various factors that make businesses fail.
• Managerial incompetence or inexperience • Neglect • Capital • Weak control systems Managerial incompetence or inexperience Most businesses fail because of bad management. A manager is the one who creates a work climate that encourages productivity in any business. Most managers lack the relevant and management expertise such as accounting, purchasing, human resource and in other fields. A manager should be well knowledgeable in all the areas of the business to enable them to make informed choices. Managers are also supposed to delegate, train and hire competent employees.
The role of a manager is very important because he inspires the employees, thinks strategically, envision new possibilities, and solve company problem. It is therefore very important that we hire very competent managers who will steer the company in the right direction. Regularly enrolling the managers in refresher courses will ensure that they will acquire the necessary knowledge and also keep abreast with the new management techniques. We will also ensure that the managers and employees are well remunerated as it motivates the employees. Neglect
As a business picks up most managers or owners tend to neglect some very important issues and practices in the running of the business. Organizing, planning, controlling are all activities that are concerned with business operations that will be regularly be practiced to ensure the smooth flow of the business. Market research is also very important as it will alert us and the managers on new market trends and what the business may improve in to get a bigger market niche. It is therefore very important that we uphold these practices throughout the life of the business.
In this technological era the needs and trends are constantly changing and so a business maybe overtaken by the events making it to collapse Capital When starting a business capital is one of the most important factor. If there is no start up capital then the business is bound to fail. Most people tend to concentrate on the start up capital and do not set aside the cost of staying in business. Most businesses take a year or more before they take off or they break even and so enough funds must be set aside to cover all the operating costs until sales can eventually pay for these costs.
Also one may underestimate the funds needed to start and run the business and this may lead to the eventual collapse of the business because of lack of funds. These funds may be for purchasing stocks, handling the general expenses of the business, salaries etc. Some funds should be also set aside for any emergencies that may come up. We intend to draw up a budget keeping in mind all the possible costs that the business may encounter. The funds will be readily available so as to ensure the smooth running of the company.
Another factor in funds that can lead to failure is the unrealistic expectation of the incoming revenues from the sales. If wrong projections are made then the managers may overspend expecting higher returns and this will ultimately bankrupt the business. We will carry out a thorough market research on similar businesses so we have an idea of how much capital we will need to start and keep the company afloat. Also the average returns expected for a business in our scale of operation. Weak control systems
Every business requires control systems to keep in check all the operations of the business. Control systems are required if all the areas of the business. The systems may be broken down as follows: Control environment: this deals with authority and control in the business. It is very important to have a clear hierarchy of authority because it limits any conflicts . We should formulate clear lines of authority and communicate them to all the employees so that everybody is aware on who handles and is responsible of what.
Monitoring: When there is no proper monitoring then the control systems will be ignored thus operations, policies and procedures of the business may not be followed which can lead to collapse. There will be strict monitoring and follow ups on the operations Risk assessment: Every business has its internal and external risks factors and if they are not well assessed and proper measures put in place then the business may fail. Control activities: This concerns the policies and procedures of the company. Strict guidelines will be put in place.
For example how to deal with issues such as theft, lateness and other business malpractice will be well stated. Also there will be a guideline on how procedures are to be carried out for example procurement, who to procure and how to go about it. Information and communication: This is very important as it will ensure there is proper flow of information in the business. The communication channel will be put in place to make the business run more effectively. We intend to put in place a strong control system and regularly revise and update it to keep it relevant with the business needs.
Also this will help to cover any loopholes in the system. Employee’s opinions will be highly regarded as they are the main assets of our company. Most businesses fail because of failure to tackle these failure mechanisms. In our sports good business, we intend to keep in mind the failure factors in a business so as to make our business a success. Reference Hollard R. (1998), Planning Against a Business Failure, Agricultural Development Center Viewed 30 march 2009, < http://cpa. utk. edu/pdffiles/adc24. pdf>.