| Australia Tel: +61 7 3012-6287 | United Kingdom Tel: +44 20 3239-8408 | New Zealand Tel: +64 9 889-1940
| Australia Tel: +61 7 3012-6287 | United Kingdom Tel: +44 20 3239-8408 | New Zealand Tel: +64 9 889-1940

Why are business owners failing to do the numbers?

We all see the headline statistics from time to time regarding business failure. It has almost become one of those urban myth type statements that get rattled off by one and all – “9 in every 10 businesses fail in the first year and of the remaining 10% 9 in every 10 fail in the following 10 years” or so the story often goes. The real numbers, according to the Australian Bureau of Statistics, are more than 60 percent of small businesses cease operating within the first three years of starting. This is still a staggeringly poor survival rate.

So what does “cease operating” really mean? Closure, liquidation, bankruptcy. Why is it that within 36 months of opening, at least 6 out of 10 business have permanently closed the doors. In my opinion,it is probably best defined by the owner/founder/managing director achieving the desired goal from their business. It could be money or happiness. However, lack of the former usually ends up being the latter. To sum it up, the original dream was not being realized and a shortage of funds, lack of determination, passion, or will has won the battle.

So that brings me to the point and I am puzzled why so many start-up new business owners aren’t doing the numbers before they start in the first place. Why are so many cafes, hairdressers, trades people, etc. not sitting down and asking (and answering) themselves how much they would like to earn from the business. Then upon that discovery sitting down and working out how many products/service they need to sell to achieve their goal.

The formula that could save your business
  • 1 x product or service cost $X (Cost of Sales)
  • 1 x product or service sells $Y (Income/Revenue)
  • $Y - $X = Gross Profit
  • Business overheads will by $Z
  • Gross Profit - $Z = Net Profit

Keep increasing the number of product/services required to be sold until the above equation is beyond the desired income level. Yes there are other factors, income taxes, GST etc, but just starting with the above would be a massive improvement on what the vast majority are currently preparing with. If the numbers don’t work, then either keep adjusting all the variables until it does or if it’s too unrealistic DON’T START, find something else to do.

There is nothing wrong with a dream, more power to the dreamers and much respect to acting on a dream – but please add some planning, forecasting and budgeting to the dream – it will get you much closer to the dream becoming a reality rather than a nightmare. Without an initial plan of what the business will look like in the medium to long term, is it really any wonder why the owner will lose interest within 3 years?

If you need help with planning you new venture, or with improving an existing business, please check out our website www.nickbarnsdall.com for tips and templates, or message me directly on Facebook, Instagram, LinkedIn or Twitter below.

Be awesome today!

Nick B

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