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· 16:46
· 6 Segments
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Title:Critical Issues in Business: Success and Failure
Date Added:04/18/2013
Copyright Date:© 2012
Item #:52670
Type:Educational Video
Run Time: 16:46
Educator Resources
Related Subjects
Business Education | Management
00:00:01 [MUSIC PLAYING] No two businesses are the same.
00:00:22 Even those that offer identical products and services.
00:00:25 So every business needs to have a solid understanding of its own goals, and the resources it will use to achieve them.
00:00:32 A business plan is a formal statement outlining a set of goals, the reasons why these goals are achievable, and how they'll be achieved.
00:00:41 A large organization will draw on the expertise of a number of people to develop its business plan.
00:00:46 The business plan might be set from the top down, i.e.
00:00:49 the board gives you an overall growth objective or an overall business plan for the next 5 to 10 years.
00:00:56 And then, you might have the finance director involved in setting the key objectives of that plan.
00:01:02 Also, the business will need to involve other departments like sales, marketing-- depending on what the business' area is-- because the finance team itself only knows so much, and they need involvement from other experts within the business.
00:01:16 What the whole business plan describes is what the problem that your product is solving, and what your solution is to solving that problem.
00:01:23 And then further down the line comes an estimate of the market size, and perhaps some financial forecasts for how big that market could be and how much return is possible from that market.
00:01:37 Business plans are just as important for small or medium sized businesses.
00:01:41 But often they will be more focused on shorter term goals.
00:01:45 It doesn't actually plan for any stumbling blocks or road blocks that are actually in the way.
00:01:48 And that's what we found, when we first opened up is that things that we thought we'd planned for, we' hit a road block and go, what we do now?
00:01:55 We started off with a business plan.
00:01:57 About three weeks later we threw it out the window and said OK, what are our goals?
00:02:01 And now we just work towards our goals.
00:02:03 And we find that that's actually a better way of doing it.
00:02:05 What we thought was key to start off with was to get our basic business model functioning and working properly before we over complicated it with all our other ideas.
00:02:15 A critical issue facing larger organizations is how to best manage its working capital, or cash, especially in the long term.
00:02:23 So with growth, when you're planning financial management, you need to have a good budget.
00:02:27 You need to have a good forecast.
00:02:29 It needs to be smart, effectively.
00:02:32 It needs to be measurable, it needs to be specific, it needs to be achievable.
00:02:36 So really, the achievable thing is what I think is most important.
00:02:40 You need to make sure that the growth levels you're forecasting are at a reasonable level and a sustainable level.
00:02:45 So financial management really helps to decide how much growth you need, and what you're actually growing in.
00:02:52 The use or purchase of technology is another key consideration when developing a business plan.
00:02:57 The IT function plays a vital role in maintaining the records, by making sure that all the spreadsheets, everything that you do on the computer is backed up regularly.
00:03:06 It doesn't break down.
00:03:07 That only the right people have access to it.
00:03:09 And generally that everything is OK with all the records of the business, not just financial.
00:03:13 Without the right people, no business can plan successfully for the future, especially for smaller companies where fewer key people drive the operations.
00:03:22 Very few successful businesses are run by one person.
00:03:26 You can't do it all.
00:03:27 And we found that from day one.
00:03:29 There are so many aspects to consider when setting up a business.
00:03:34 And it's been vital and pivotal in our business development that we have three very different characters.
00:03:42 And all of them bring something to the table.
00:03:45 Balancing the different parts of the business-- whether it's finances, technology, or people-- is an ongoing challenge.
00:03:52 A business plan that can keep up with change and alter its goals is better placed to succeed.
00:04:04 Identifying how and why a business fails can be complex.
00:04:08 Was it the people in charge?
00:04:10 Was it the product or marketing strategies?
00:04:13 Was it poor technology?
00:04:15 While it's difficult to pinpoint a single factor, there are five reasons which are common to most business failures.
00:04:21 The fifth most common problem is under-capitalization, which is essentially a lack of money to finance the operations.
00:04:27 Number four is overuse of credit, where a business borrows excessive amounts of money and becomes crippled with debt.
00:04:36 Next is an inability to deal with the fluctuations in costs such as wages, rents, materials for production, or interest rates.
00:04:44 The second most common pitfall is poor record keeping.
00:04:48 Without proper financial controls-- especially for debtors and creditors-- a business can survive only so long.
00:04:55 Finally, the most frequent reason businesses fail is people.
00:04:59 A lack of management experience is involved in over 1/2 of all business closures.
00:05:04 Rarely though, does failure come down to just one factor.
00:05:07 I think there's different types of pitfalls which different businesses will fall into.
00:05:12 For a small business, like a corner shop being run by a couple of guys straight after uni.
00:05:18 What that will usually face is a distinct lack of resources for proper financial management planning.
00:05:24 And it's fair enough that a small shop selling kabobs will not have the resources or need to hire 75 different experts to analyze the prices of meat as they're expected to rise and fall in the 7 to 10 years.
00:05:39 Whereas a large business might, indeed, overspend on this sort of thing by going to three different external consultants, getting unnecessary reports, and essentially over-planning.
00:05:52 But that's usually less of a risk because as you say, failing to plan is planning to fail.
00:05:57 The other thing too, is you've got to understand that once you start you need to be at least generating some income straight away.
00:06:05 If you're trying to open a business where you're not going to see income for two, three, four, five, six months, them you're in quite a bit of trouble.
00:06:11 So you have to work out a way that OK, how am I going to get money in straight away?
00:06:15 And start focusing on that very, very early on just to get money in.
00:06:19 And then you can start planning for everything else.
00:06:21 A SWOT analysis is a frequently applied and useful tool which can help any business avoid common mistakes.
00:06:28 It identifies the strengths, weaknesses, opportunities, and threats, and why these are important or relevant to the business.
00:06:37 While a detailed SWOT analysis, or an experienced manager, or the best technology can enhance the prospects of success, there are other important factors.
00:06:47 You got to believe in what you're doing.
00:06:48 So if you don't believe in vacuum cleaners, don't go and open a vacuum cleaner business.
00:06:52 You've got to go well, this is what I like doing.
00:06:54 This is what I believe in.
00:06:55 And if you do that, you'll find that you'll make 40-odd hours out of any day and your productivity will be just so much higher.
00:07:01 So have fun.
00:07:10 How do you choose the right people for a business?
00:07:13 It's a question every manager or management team asks.
00:07:16 And then, if you do you find the right people, how do you keep them motivated and working together?
00:07:22 Basically, we have meetings constantly.
00:07:24 So we have a staff meeting with our sales department once a week, and also with our property management department.
00:07:30 And then as a morale boosting thing, we'll do something like a dinner or going out.
00:07:36 Just basically so that our whole team works as one.
00:07:39 In a small business, success or failure often comes down to how well a few people work together.
00:07:45 From the initial conceptual idea, everything takes a lot longer than you think.
00:07:52 And we are three very capable people.
00:07:56 We have been stretched to the limit in terms of our time and resources.
00:08:00 We've put in lots and lots of hours into planning.
00:08:03 But you need to put that time in to secure a successful business.
00:08:08 The culture and level of morale within a business will often determine how it treats its clients or customers.
00:08:13 So client relationships are actually one of our top parties.
00:08:16 We have to make sure that we look after all of our clients, because we actually want repeat business, and obviously referrals as well.
00:08:23 So all of our staff know that they have to look after all of our clients with the best of their ability.
00:08:29 Low morale, or poor working conditions, cause businesses to operate less efficiently and suffer in the long run.
00:08:35 You can actually have too few staff, where basically people are constantly under stress, under pressure.
00:08:42 We obviously don't want that in a role for anybody in our office, just due to the fact that we want to make sure that the job is done properly.
00:08:51 And sometimes if they're actually overstretched then we actually won't get to service that we want for our clients.
00:08:57 Plus, also, their work may suffer.
00:08:59 Managers may also overlook the importance of training with their staff, especially if new laws, technology, or workplace procedures affect operations.
00:09:08 Implementing too many internal changes can also impact negatively on staff.
00:09:13 Often you'll be putting in new procedures, you could complicate things.
00:09:15 You can complicate your staff.
00:09:17 People can't get used to the procedures.
00:09:19 And in the end, you're trying to innovate so much that you actually make yourself a lot more inefficient as a company.
00:09:25 There's no doubt managers can face challenges keeping staff motivated.
00:09:29 But often it starts with how they themselves view the business, and to what extent they believe in what they're doing.
00:09:43 Establishing a business of any size requires a sound understanding of its financial situation.
00:09:50 But problems often emerge when a business over extends on its finances.
00:09:55 For example, if you had a situation where a business is just paying out invoices left and right, not checking what's getting paid, eventually what might happen is either fraud or errors in the way that payments are made.
00:10:08 What might starts as a minor error or oversight can quickly expose the business to a range of risks.
00:10:13 The way that accounting works is sometimes you might get a profit that doesn't equal the amount of cash you have in the bank.
00:10:21 Which then means, on paper, you can make a payment to your supplier for these goods you purchased to resell.
00:10:27 But really, your bank account doesn't have the cash.
00:10:29 That means you can't pay your supplier.
00:10:31 That means you can't deliver on the contract.
00:10:33 The contract is canceled, and the business-- in the worst cases-- might get [INAUDIBLE] up as a result.
00:10:38 Which is why you need excellent financial management as far as the cash flows.
00:10:42 To make sure that you have sufficient cash to meet liabilities and grow quickly enough.
00:10:48 Having clear, logical, internal systems--- especially in large organizations-- can help reduce these risks.
00:10:55 Financial risks and losses are usually minimized by a combined process from the whole business.
00:11:00 But it should start from the budgeting process from the board, to make sure there is a comprehensive and very robust risk management policy in place.
00:11:09 Now, what that might involve is an internal audit team which will go through the business and make sure that there are no flows in the financial controls processes, that nobody's stealing anything.
00:11:20 It's a very basic example.
00:11:22 But it does need to be addressed.
00:11:24 Budgeting is a crucial part of any business plan to forecast and monitor finances.
00:11:29 Some companies will leave budgeting up to a few central people, such as the Chief Financial Officer and CEO, while others include a range of personnel.
00:11:38 Companies will use a bottom-up budget, or an incremental budget, where the people who actually do the roles-- so the actual accountants or the line managers-- will decide how much resources they will need, what their focused on going forward, and they'll work their budget up from there.
00:11:54 So the actual people who know the business more, who know their lines, who know their capabilities will tell the upper management look, this is what I need.
00:12:02 This is what we need to do to meet objectives.
00:12:04 Whether it's budgeting or staffing costs, or trying to predict customer needs, no decision comes without some degree of uncertainty and risk.
00:12:13 Developing a strong financial management plan helps to minimize risk and promotes long-term success.
00:12:26 It's the question every business continually grapples with-- how do we remain competitive?
00:12:32 Is it about customers or internal systems?
00:12:35 What are the best investments to make?
00:12:37 How much market share keeps us competitive?
00:12:40 We actually have to offer other things that our competitors don't have to make us different from any other agency.
00:12:47 Well, the way for a business to be efficient about the way it does things is to have regular, good, robust information.
00:12:54 And that usually comes from the finance function.
00:12:56 From management accounting, from payroll, from the finance controller or the board.
00:13:02 Product or service pricing and delivery is integral to gaining a competitive advantage.
00:13:07 The most important thing to take into consideration was price.
00:13:10 We were starting with no money.
00:13:12 So we were trying to call in favors left, right, and center, basically.
00:13:16 Which I think everyone has to do when they're young, starting a business.
00:13:19 So it was something that we could build really quickly, really cheaply.
00:13:25 Something we could just kind of get up and started and run with as quickly as possible as well.
00:13:29 Because we had a bit stock.
00:13:30 We had stock coming.
00:13:32 We wanted to shift it.
00:13:32 We didn't want to be waiting around trying to make a website for months on end.
00:13:35 This is how we try and beat our competitors.
00:13:39 The customer will ring up, and set a design brief-- or via email-- and we will get a design to them, usually that day or the next day, depending on what sort of time.
00:13:49 And then once the design is confirmed, the print is very quick.
00:13:53 And it'll be sent out to them within a day or so.
00:13:55 So the customer will receive the goods within three to five days.
00:13:59 Investing in new technology and production methods can also assist with maintaining a competitive advantage.
00:14:06 So technology's changing.
00:14:07 And it's changing on a daily basis.
00:14:10 Four or five years ago, we would spend probably 90% of our marketing budget on print media.
00:14:16 Whereas now I wouldn't even spend any money on print media.
00:14:19 We just spent 100% on internet campaigns, internet advertising, Google optimization.
00:14:23 Because that's just where the people are, and that's where we need to ultimately get in touch with them.
00:14:27 As we've just bought this new machinery into the mass production market, we're doing kind of an entry-level price, penetration pricing.
00:14:33 Where we're just undercutting our competitors slightly.
00:14:37 Just so we can gain some market share and then you can start to rise the price, especially in the new year and when you become a bit more established in the market.
00:14:46 A business that is flexible-- say with its product offering, margins, or distribution networks-- is able to respond quicker to market trends and stay competitive.
00:14:55 Success doesn't automatically come by adopting a winner-takes-all attitude.
00:15:00 High ethical standards are an important ingredient.
00:15:03 Business ethics relate to how people in organizations behave, and how their actions affect others.
00:15:09 A company selling a cleaner, more sustainable car at a higher price might actually have a competitive advantage over a cheaper car manufactured less sustainably.
00:15:19 It's never straight forward as to why a company maintains its competitive advantage.
00:15:23 Sometimes it comes purely down to timing, or having the right people involved, or an unexpected event in the market.
00:15:30 But recognizing when an opportunity presents itself is the first step in staying competitive and succeeding as a business.
00:15:38 [MUSIC PLAYING]