Business fail rate

[ians]

if you google business fail rate in South Africa ...80 % within the first 3 years...it was around 50 % in the first 5 years back when i started my business.

Why is it so high...something must be wrong with the current advice offered.

When people talk business stuff ...they talk business plans...cash flow... investment...markets ...etc etc

If you have been operating a business for longer than 10 years and still going strong...i want to know what it is you are doing that separates you from the 98 percent of failures.

Was it your business plan...i was told 29 years ago without one of these... i wouldnt last 5 years.

Is it the manner in which you allocate your turnover...i know this is one of my biggest issue in my business...how i allocate the money which comes into the business...when i get this right i am gona become a very rich man.

Is it the manner in which you promote your product...services... etc ?

Nobody ever talks about why there is such a high fail rate.

Tell us about your experience if you were one of 80 % who closed down with the first 3 years...what did you do wrong?

The way i see it somebody must be giving the wrong business advice... if you take the fail rate into account.

[Andromeda]

I don't know what the statistics are, (does anyone know?) but many folk are practically forced to start some sort of business, because quite simply they cannot find work.

When businesses are started out of necessity rather than choice, this is often the result. People no longer have an idea or goal, they are desperate and have an immediate need.

The ease of company registration and negligible cost I believe also contributes to the failure rate. Without a name reservation it is completed within a few hours. Most times a name reservation can hold it up a day or two. Compare this to the "old days" when you were faced with either buying a shelf company or close corporation or registering one, which could take anywhere up to a month and cost a whack.

Personally I see a massive increase in company registrations; I register so many that I no longer keep record of it. The periodic deregistration list prepared by CIPC is nothing short of breathtaking. Rather than sell a disused company, incorporators simply leave it naturally expire.

[adrianh]

I don't know what the statistics are, (does anyone know?) but many folk are practically forced to start some sort of business, because quite simply they cannot find work.

When businesses are started out of necessity rather than choice, this is often the result. People no longer have an idea or goal, they are desperate and have an immediate need.

The ease of company registration and negligible cost I believe also contributes to the failure rate. Without a name reservation it is completed within a few hours. Most times a name reservation can hold it up a day or two. Compare this to the "old days" when you were faced with either buying a shelf company or close corporation or registering one, which could take anywhere up to a month and cost a whack.

Personally I see a massive increase in company registrations; I register so many that I no longer keep record of it. The periodic deregistration list prepared by CIPC is nothing short of breathtaking. Rather than sell a disused company, incorporators simply leave it naturally expire.

I agree with you. Another thing is the popular drive towards entrepreneurship (without education). Saying to people who fail at school that they should go out and create their own businesses (without any semblance of business education ) is a recipe for disaster. I also think that education in itself is a disaster - kids are not taught basic social survival skills let alone basic accountancy nor basic math for that matter. I get that the government feels that every subject should be turned into a rewrite of history (my daughters leaned politics in geography in grade 12 - I kid you not) but unless people are taught basic economics nothing will change. We also need to remember that a very very small percentage of kids get to write matic and even a smaller percentage go on to complete tertiary education. Tertiary education also ads to the problem because a BCOM or an MBA does not make one an expert, it only enables one to get a far better start in life.

I can carry on about this stuff for hours on end, I have 2 daughters at university and I have been self employed for about 15 years. I clearly see the issues that my daughters are facing and I can also clearly see why my business has performed so poorly in the past. I will say this, speaking from experience - technical people who love the technical side of life SUCK at running businesses on the whole - we just want to solve problems, tinker and make stuff....which is no good when we fail to understand nor do the basic business math. Technical people have to have business minded partners otherwise they fail.

[Justloadit]

From my experience being in business from 1991 in my current one and still going (not sure how long it will continue ), and during the same time having closed down one company and liquidated another, the main factors for a successful business in my mind is as follows :-

1. Savings in which you can survive with out income for at least one year, preferably 2 years at the current rate that you are living on.
2. Capital to invest in your business, to be able to purchase at least 3 moths of stock, and be able to maintain business expenses with out income for the first 3 to 4 months
3. Understand what market you are going into and do some research before starting
4. Do sales pitches before starting, and have have a line of customers who promise to support you. Now take 10% of these customers who say they will support you and use this as the number that you work all your business decisions into the future. When you are in business, and ready to trade, most will abandon you for evrey reason under the sun, until you are established.
5. Do your calculations by erring on the higher cost of running your business and lower sales than expected.
6. Understand what "Mark Up" is, and what "Profit" means. They are not the same!
7. DO NOT SIGN ANY RENTAL AGREEMENT/LEASE FOR ANY LENGTH OF TIME BEFORE YOU ARE ALREADY TRADING FOR AT LEAST 6 MONTHS. By this time you will know what you need.
8. DO NOT SIGN ANY SURETY WITH ANY CREDITOR UNLESS YOU CAN AFFORD THE PAYMENT! This does not mean you must not sign a surety. In today's business environment, you will not get credit unless you sign one. What I am saying is ensure that what you sign has a maximum amount and a time limit, and that you understand the implications should you default! This will happen!
9. Understand the basics of economics, the money in your bank account does not mean you can spend it yet. You first must pay your bills.
10. REMEMBER you DO NOT SPEND more money than what you make - recipe for failure.
11. If in doubt ask for help!
12. If you don't know ask for help!
13. If you don't understand ask for help!
14. Always plan for the worst case scenario, and plan accordingly.
15. Don't take changes and shortcuts, they have a habit of coming back at you at the worst times to be rectified.
16. Don't get involved in any business unless you personally can do the work. Key employees have a habit of abandoning you in the middle of projests.

If I think of more I will add.
Feel free to add your points here as well.

[Justloadit]

Some more

17. Avoid giving credit at all costs!
18. Get a deposit to cover you material before starting any projects - will save you in the long run plus you have capital to purchase the raw materials. USE THIS MONEY FOR THE INTENDED PURPOSE NOT FOR YOUR FANCY NEW CAR!
19. Customers who say that cost is no object to the project are the ones who don't pay! Demand 80% up front, if money was no object then they won't complain

[henry226]

Wrong decision is one of the major causes of business failure!

[Blurock]

Good advice Justloadit!
I can also add that when you do your business plan and cash flow projections to determine how much money you require to start your business, multiply that by TEN! The good thing about hard times is that people start thinking for themselves in stead of just waiting for a pay cheque. The bad thing is that we come up with schemes; not well planned business ideas. A scheme is always a $#!t idea and it never works in the long run.

[ians]

For service companies ...dont allow the customer to supply the materials required for the project unless you have adjusted your labour rate accordingly ...especially if you rely on the material markup to cover overheads.

DONT GET INVOLVED IN BACK HANDS... this will bite you in the long run... by back hands... i dont mean paying cash to a person in a company to get the job... the little things like people asking for a small donation for the kids raffle at school ...even silly thing like a free light on the odd occasion ...it becomes the norma for the that person to expect you to just give.

NEVER LEND ANYONE YOUR TOOLS... i have trailer loaded with all the tools i require for a project ...if i dont have it i go buy it... what i have noticed in recent years is more and more companies dropping off labour without all the tools... ladders ...scaffolding etc to complete their project ... before you know it you having to ask if you can borrow your own ladder or tape measure etc ...what out for theft ...it has always been a problem ...just got worse in recent years... the answer is simple..."NO" ...it pays to get a cheap R299 wifi camera linked to a 24 hr cloud account to watch your equipment.

[ians]

Good advice Justloadit!
I can also add that when you do your business plan and cash flow projections to determine how much money you require to start your business, multiply that by TEN! The good thing about hard times is that people start thinking for themselves in stead of just waiting for a pay cheque. The bad thing is that we come up with schemes; not well planned business ideas. A scheme is always a $#!t idea and it never works in the long run.

If i relied on a business plan and cash projections...i would still be an employee ...29 years later... what would be regarded as the long run? I might try a bussiness plan and cash flow projections once i have hit the my 30 years goal... then i dont really care what happens... the more important thing from then on is going to be isolating all my personal assets from the business... if the folds i can do what everyone else does... close the business offer a 10 cents to the rand and start a new business... when i think back of how many people i have seen screw people like this ...especially the small businesses... power flow exhausts comes to mind... they screwed me for a lot of money when they moved from Umbilo rd to Pinetown... with Michael banks if i recall he worked for Benham and ass. ...man we all got so A$$ f^&*ked... which became primo force exhausts ...where he became a director.

[adrianh]

I'm not particularly interested in console or PC games but I am interested in the development of the electronics industry. I've watched numerous documentaries on the development of the various industries such as consoles and micro computers like Sinclair, Amstrad, Atari etc. The one thing that stands out is that there were dozens of good companies that failed through no fault of their own. It is so easy to "predict" failure in hindsight and then to draw pseudo inferences about what constitutes successful companies and businesses. Of course there are basic business rules that gives one a good basis to work from but those rules are just that - a basis. I am not saying that one should not look to the past and learn from it, I am saying that one needs to be careful to predict the future without hedging your bets. All that it takes to kill a business is one Black Swan event. One needs to position yourself so that such an event doesn't wipe you out completely.

Organic growth is important - growing fast can kill you if you borrow money to do so - again all it takes is for a small change to occur in the market and not only are you wiped out you are also in debt.
Too much business can be very detrimental if margin are too low - There is no point in making 1c per item on 1000 widgets if you can make R100 per item on 10 different products.
Staff are walking overheads - They will eat you alive - Have as few as possible.

[ians]

If i look back at many of the companies which closed... one thing stands out more than most ... expansion.

It is actually sad to think that not one of the customers who helped me grow and survive all these years is still operating.

Another thing i have found catches up with you... customers which over time just become part of the everyday grind ...i have found you tend you get slack with payment collections and eventually they go from COD to 30 -60- 90 days ... i have one customer i let go because over the years there have been a few factory builds... factory moves and then just machine repairs and because the outstanding money is small you tend to just let it go... until this customer just got out of hand ...in fact they have never settled their account... it is only about R4000 ...but 5 customers not paying R4000 become a problem... the catch is they take advantage and forget that they have tried other companies over the years and keep coming back because you know their equipment and control etc ( there is a manual star delta crank handle on one of the old lathes) there are not many sparkies around who can fix an old manual star delta and fit and program a PLC... most can do either one or the other.

[ians]

Staff are walking overheads - They will eat you alive - Have as few as possible.

Or make a ton of cash ... something i have noticed with bosses ... many treat their employees like they are stupid fools... people just think because a person cant do a specific task they are stupid... the only stupid person is the fool who doesnt see that persons strengths.

If you can find an employees strengths and encourage that person in their strength ...you have a gold mine.

Between 1992 and 1998 ...i put together an efficient trenching team and made more money digging holes in the ground ...more than i have made on any other projects... back then we were charging R12 per metre to trench... digging 5 x 30 m long trenches and back filling... per day ... i was paying out R350 per day.

I went to JHB to help out a crew to complete a project which got behind ... put together a good team ...we installed 4000 m of cabling in 3 days...when i contacted the owner to tell him i needed a lift home earlier than expected ... i got to sub contract on every project he worked on after that.

Richards Bay a company got behind on a R14 million project ... i was asked out ...had a team of 75 people ...we were the only company which completed the project without penalties.

My point ...get stuck in... find the team members strengths... and anything is possible.

As you can see ...putting my thoughts on paper is certainly not one of my strengths

I could employ a young tidy piece of stock to sit in my office and correct all my spelling and grammar... but then i might as well get a social media liason person to make myself look good all the time... how f%^& boring... become part of the flock.

[adrianh]

Or make you a ton of cash ... something i have noticed with bosses ... many treat their employees like they are stupid fools... people just think because a person cant do a specific task they are stupid... the only stupid person is the fool who doesnt see that persons strengths.

If you can find an employees strengths and encourage that person in their strength ...you have a gold mine.

Between 1992 and 1998 ...i put together an efficient trenching team and made more money digging holes in the ground than i have made any other projects... back then we were charging R12 per metre to trench and digging 5 x 30 m long trench and back filling per day ... i was paying out R350 per day.

I went to JHB to help out a crew complete a project which got behind ... put together a good team ...we installed 4000 m of cabling in 3 days...when i contacted the owner to tell him i needed a lift home earlier than expected ... i got to sub contract on every project he worked on after that.

Richards Bay a company got behind on a R14 million project ... i was asked out ...had a team of 75 people ...we were the only company which completed the project without penalties.

My point ...get stuck in find the team members strengths and anything is possible.

That may be true but my point stands - hire as few people as possible.

[ians]

From my point of view... what i understaood to be the reasons behind some of the failures that i witnessed:

A small company... business is booming in the location for a few reason ...everyone knows where they are... there is plenty safe parking... wide variety of stock ...shop owner was taking note of what the customers wanted and made sure it was available... customers like myself wanted the best quality high end stuff... i would get a little peak preview of what was available ...i had a book which allowed me to purchase whatever i wanted and just dropped off payment as and when i got more money... of all this the key to the survival which kept everyone going back ...the price ...parnter dies ...shop is moved to a huge shop ...plenty of space ...location was wrong ...parking was an issue ...prices went up and within 2 years the business was bankrupt.

Another small company... big contracts are secured ...staff is tripled ...loans are secured and business is booming ... the small space is maxed out ...next door factory is acquired ...we are called in to do our thing... another operation is started doing something slightly different... it starts taking off ...the suits are on site... 2 days later a container arrives ...we are called in to disconnect all the machines related to this part of the operation ... sold ... and so the business grew ...another operation starts and a couple months later ...sold ...but during this time the core business is still function and making good money... the owner moves into a top end suburb ...new car... new motorbike and a few other toys ... a couple of years go by ... the company was making money ...how do i know ...because i keep connecting and installing new stuff... then i get the call... we are expanding moving to new premises ...my bank balance is popping at the seams from this project... business moves to massive premises ... owner takes a back seat ...while enjoying good fortune... i forgot to mention ...he employs a manger to run things while he is out of town ....most of the time...2 yeas later the company is bankrupt.

Another small company ...household brand... not one of my regular customer... but word gets around you want the right person to move your factory ... so i get call... by this stage we can disconnect and strip the factory on a friday afternoon and have your factory running by 7 am on Monday morning... no matter how big or small your operation was (nampack took 3 months...because back when we did it ...we were still new at it)..."i had a good efficient team" ...first stop the chemist for a box of the red stuff ( to help stay awake) friday 4.30 pm we move in and start ....2 days of non stop work the main switch is energised...i go home to sleep... 6 months later i still havent been paid (in fact 15 years still not paid)... company is bought out by an organisation which apparently does this often... information about the companies financial woes is leaked and they move in ...spread the word which results in all the creditors calling in payments ...the financial burden becomes over whelming and they slide in make a ridiculous offer and take over.... the auditor who managed the account resigns and issued with brand new business cards labeled... manager.... was it the move to the bigger premises or the dirty deeds of the auditor? by the way the new owners went belly up and last i heard the new manger was scratching for employment.

[ians]

What i want to read on this thread is real life stories about success or failure... what you think you did right or wrong to get to where you are right now... there are servers full of business advice... detailed plans of how to become a successful businessman...as i have mentioned before ...with a 98 % fail rate in business ...I dont know that the advice is for everyone.

Simple things like ... i have a mate who takes 15 % of every single payment made into his bank account and moves it to a VAT bank account... on vat month he pays SARS directly from that account ...come end of the year whatever the balance is ...it is transffered into a money market account... is it the right thing to do ...does it have the best interest rate and all the other question the "smart " people are going to ask... what is more important ...is that he actually does it.