Friday, January 7, 2011

Consulting: Why Businesses Fail

Since it's the new year, many of you have probably made resolutions like losing weight, getting more fit, or spending more time with the family (okay, these are some that I made!). Some of you may have made the resolution to jump into consulting this year - either part-time or maybe fulltime. However, I know a few persons who have made the decision to jump backwards, going from consulting into a job, many for the simple reason that their business failed or is failing. This can happen despite the fact that many of these people may be very good evaluators. So why does this happen?

Jay Goltz has just published the Top 10 Reasons Small Businesses Fail providing lessons learned that support my assertion that small business owners (such as evaluation consultants) need to work on their business acumen as much as their consulting and evaluation skills.

Consider the following:

• The number one reason small businesses fail is that there is not enough demand for the product or service at a price that will produce a profit for the company. I do think there is demand for quality evaluation out there so maybe gaining better marketing skills or consulting skills are where a good evaluator who cannot find or sustain business needs to begin.

• Lack of a cash cushion and poor accounting are listed as the 5th and 4th reason why small businesses fail. Although it doesn't take a lot to start an evaluation consulting business (a laptop and printer, SPSS, and a phone line!), cash flow is almost always an issue. Make sure you track your expenses and income so as to ensure that your income always exceeds your expenses (and hopefully by a lot!). There is also much to be said by only spending money that is actually in the bank versus forecasted.

• The next three reasons are operational mediocrity (6), operational inefficiencies (7), and dysfunctional management (8). Although these are all somewhat intertwined, operation mediocrity, meaning you perform average or below average in your consulting area, results in lack of repeat and referral business, something critical for most businesses. Operational inefficiencies include paying too much for rent, labor, and materials. Given today's economy it pays to be lean - no need for stunning office views or leather furniture when times are tight. Finally dysfunctional management includes lack of focus, vision, planning, communication, etc. As Jay Goltz says, "Throw fighting partners or unhappy relatives into the mix and you have a disaster".

I love lists like these because they remind me of what is important to ensure that my business continues being profitable. Look at these and the other reasons Goltz mentions as to why businesses fail and see if you find yourself falling into those categories. If you do, step back and find a way out! Look for books, coaches, other business owners, etc. to help you not make these common mistakes and get back on the track to profitability and fun.

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