What causes small businesses to fail? |
How can business mismanagement be avoided?
Since mismanagement usually stems from a lack of fundamental business knowledge, it stands to reason that education is vital to business success.
After all, we have said all along: “Knowledge is Power!”
Therefore, it is important that you avail yourself of the information
we are providing you in this web site and also keep in mind some
of the many resources that we make available to you as wellr any size business, whether you are doing business locally, nationally, or internationally.
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Small Business Challenges
This web site is designed to offer some hope and economical suggestions for the “folks” to compete on the cutting edge. Don’t get me wrong…we work with the “big” companies as well. Believe it or not, they want to be proactive and not reactive in the market. The big companies also need to get their products in the marketplace quicker than ever before. They need to emulate the “folks” when it comes to personal down home service and creativity. We hope to empower you with knowledge because…
Knowledge is Power
Prior to starting a small business and implementing any business plan, there are a few common sense things to keep in mind.
Small Business Marketing Strategy #1
Andrew Carnegie said the sole purpose of being in business is to make a profit.
With this simple concept in mind, every business owner should first closely evaluate his or her cost of goods and gross operating margins before they ever open their doors.
Starting a small business or attempting to run an existing one without strong gross operating profit margins is a recipe for failure.
As a rule of thumb, if you are manufacturing a product you will need at least a ten-to-one markup ratio between the suggested retail price of your finished product and your raw cost of goods. In starting a small business that provides services, you will need a similar markup ratio to pay labor costs relative to the amount of goods and services your work force delivers for their wage.
Small Business Marketing Strategy #2
Secondly, regardless of whether you are a manufacturer or service company, your business will need to produce a minimum of $80,000 of revenue per employee to cover your operational costs and to produce an after tax profit.
Companies that produce over $150,000 in revenue per employee are considered healthy. Recently, some “new economy” companies have begun producing sales in excess of $1,000,000 per employee.
Small Business Marketing Strategy #3
Finally, in addition to having strong operating margins and a minimum of $80,000 revenue per employee, anyone starting a small business should consider positioning themselves in markets that are experiencing compound annual growth.
As opposed to mature industries where growth and profits are flat or declining, some markets are growing 25% to 100% annually.
Although not necessary or always practical, any business that enters a market experiencing compound annual growth will have a better than average chance of survival because customer demand will far exceed the supply of competitors jumping into meet the demand.
Granted, not every person who ventures into starting a small business has the background, wherewithal or desire to be in a “new economy” business. However, this doesn't’ mean the rules for enjoying economic success have changed…
To have a better than average chance at being the one out of ten small businesses started still in operation ten years from now, make sure your business plan provides for high gross operating margins and a minimum of $80,000 per employee in revenue. Positioning your small business in a market with compound annual growth rate will increase your odds of success even more.
