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Sunday, May 17, 2009

Shush, Quiet! There Are 7 Deadly Business Killers Just Outside

How many possible reasons are there for business failure? One business professor lists thousands of potential reasons for you to fall victim to. Although my list is shorter and easier to understand the hazard remains - these killers are poised to strike at your financial heart. Here's my short list:

1. Unwarranted Owner Salaries: Inexperienced owners often make this mistake by unrealistically assessing what the business can afford to pay. They drain the business of needed capital and then wonder why it shows a loss.

2. Undue Overhead Costs : Sales may be adequate but the business is choking to death on operating expenses. Why do you need an expensive office suite? Who are you trying to impress? When it is a matter of survival then nothing escapes the scalpels doing the radical surgery on unnecessary overhead costs. Lean and mean can win fattened profits. "What's in your wallet?"

3. Scanty Merchandising : Profitable sales levels are impossible with insufficient merchandise or poor merchandising strategy. When inventory turnover is excessive, you may be ordering insufficient quantities of merchandise to support strong sales. Conversely, you may have plenty of goods, but not the right selection or price. For several reasons, merchandising problems are difficult to correct. In one-third of retail cases losses can be explained with the direct help of merchandising problems.

4. Improper Pricing: Of the profit destroyers, this one rank high for manufacturing firms but it also irritates wholesalers and retailers. Pricing is far from an exact science. Developing proper pricing is like being in between a rock and a hard spot. When you price low to increase sales and watch gross profits drop. Price too high and sales may suffer. Look at your financial statement. If it shows shrinking gross profits, you can turn first to pricing. Your strongest advice when it comes to price? Know your cost and review your pricing, regularly!

5. Absentee Ownership: The highest mortality rate of all businesses happens under an absentee owner. These businesses fall victim to employee theft, fraud and neglect. Those usually come from unmotivated workers who suffer from lack of daily tracking. Even managers can falsify reports. That's why a business needs a boss on the premises who has an interest in what goes on. Think of the customers, when your workers are not directly supervised then unprofitable events are bound to happen.

6. Bad Location: Every retail industry publishes comparative statistics, including ideal sales per square foot. When sales fall below industry average, you can bet it due to bad location, if not improper merchandising. Calculate your sales on a square foot basis and compare it to averages. If you come up short, move to a location that can produce profitable sales.

7. Inadequate Financial Controls: This encapsulates all the managerial blunders that can kill a business. The troubled business rarely surfaces with one definable, easily solved problem. Lack of financial skill is just another symptom of poor management. Owners need this practical understanding to stay on top of business and this usually includes demanding and using accurate financial information.

I don't know if this will make you any happier but in most cases, problems exist everywhere. It all comes down to basic controls. If you don't know enough about your business how can you make the right decisions? These are exceptionally common reasons for business error. Keep your eyes open. You may be on one or more of their hit lists.


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