“The biggest issue in business right now is failure rates.” That is the view of Simon Kallu, a Chartered Accountant and Business Coach who is passionate about helping entrepreneurs succeed.
Failure rates is a tough area to target, but it is hard to argue with the logic of taking it on. According to the US Bureau of Labor Statistics, 20% of new businesses fail during their first two years, 45% fail during the first five, and 96% during the first ten (according to Inc.).
Entrepreneurs Need To Be Practical
Simon has seen the statistics on failure rates and he believes that the figure is even higher than 96% over ten years. However, he knows exactly where entrepreneurs need to improve.
“A large majority of businesses fail in the first year because they don't have a good understanding of their numbers, they can't read the dials in their business and they don't have the business skills to set the strategy,” Simon explains.
According to Simon, the best way for entrepreneurs to improve their chances of success is to increase their financial intelligence, as this will give them vital tools to help them navigate their way through all the challenges they will inevitably face as a business owner.
Three Steps To Financial Intelligence
1. Understand Profit and Loss – “When you can get a complete picture of your business’s financial health through a profit and loss sheet, you can get a firmer grasp of your business’s economic performance. It’s a visual and historical representation of the money that came in (income) and what went out (expenses).”
2. Set Both Short and Long-Term Money Goals – “Goals are what light the internal fire, but strategy is what keeps it burning. When you have a clear set of short and long-term objectives, you can refer back to them regularly to stay focused and motivated throughout the day.”
3. Keep Learning New Money Strategies – “Financially intelligent people are always hungry for more knowledge about money, finances, stock, investments and property. Learning about money can be as natural as breathing air, and it should be! Listen to podcasts about financial intelligence, read books that help to increase your financial literacy, and attend virtual seminars that teach you more about managing money.”
Planning Is Everything
An entrepreneur with a smart business plan is far more likely to succeed. Part of this plan will be a statement of your mission, vision and values. But all of those are liable to fall apart without sensible financial planning, and Simon is keen to emphasise the importance of this.
“Reverse engineer your numbers,” he writes in ‘Unleash Your Business Potential’. “This will ensure that your financial plan is detailed enough to allow you to track actual performance against planned performance.”
“For example, a vision could be to get to £5m in sales in the next three years, and to £10m in the next five years. You are now working backwards to understand what it takes to get there. To do this, work down through your profit and loss account.
“Break your sales down into unit targets for each type of product or service. Make some assumptions around the average value of your service to calculate a number of clients or customers each year, each month and each day to ensure you’re on track.”
“For example, £5m in sales might be one thousand clients paying £417 per month in fees. Now calculate any and all costs of delivering that sale. Similarly, go line by line down your overheads, concentrating on items that may grow as a revenue grows (e.g. rent as your headcount increases).”
Without this kind of financial planning, entrepreneurs run the risk of their companies just becoming another statistic in the long history of failed businesses.
It is important to recognise that it takes financial discipline to achieve success, and Simon and his colleagues at GrowFactor know exactly how to put entrepreneurs on the right path to reach their goals.