The majority of small businesses fail because they aren’t able to generate enough operating capital, they simply run out of money. But, there are ways to prevent this. The lack or loss of money is overwhelmingly caused by internal problems. Contrary to most owners’ beliefs, external forces are responsible for just a fraction of small business failures.
Companies run out of money because the owners won’t or don’t know how to address their structural and operational problems. Commonly, the actual causes of the typical business’s collapse can be traced to 4 problem areas. Therefore, if addressed in a timely manner, profit and profit margins can be increased when the problems are identified and fixed.
Key to an efficient operation is putting the right person in the right job. It’s vital to accurately assess employees’ skills, everyone has strengths and weaknesses. This is especially true in small businesses where family and friends are often in jobs they aren’t suited for. Putting people in positions they’re not trained to do or just aren’t capable of doing affects the bottom line.
Lack of accountability – for owners (who usually don’t hold themselves accountable for their actions), managers and workers – is an enormous problem in workplaces. This area all by itself can financially affect a business to the point of closing. Employees, owners and managers must be accountable for their responsibilities and behaviors.
Another area that directly affects profitability is lack of or poor internal and external communication. Billions of dollars have been lost simply because somebody didn’t pass on important information, talk over a problem, speak up with a concern or listen enough. Prioritizing effective communication, at all levels, is a smart fix.
The final area, improve production efficiency, is a no-brainer. Some of the benefits include: it’s cheaper to produce the product, requires less rework, increased customer satisfaction, is easier to sell, generates referrals and decreased waste. All of which contributes to increased earnings.
These are 4 main ways a company can increase its bottom line. If a small business owner is willing to learn some new skills, and consistently apply them, the monetary and non-monetary rewards (i.e. time off, happier employees, secure future, increased quality of life) are well worth it.
