I’ve always been fascinated by business, and I’ve been advising business owners for most of my working life, so I enjoy TV reality shows with a business slant, like ‘The Apprentice’ or ‘The Restaurant Inspector’ (where an expert restauranteur turns round failing restaurants). But it was a recent episode of ‘The Hotel Insepector’ that really got me thinking.
On this show, the Hotel Inspector was helping a hotel owner who saw his hotel as being upmarket with a ’boutique flavour’. One of the questions Alex, the ‘inspector’, asked him was what his costs were. He had no idea, and could soon be seen phoning a supplier to find out the cost of bacon, saying ‘there’s a resident tyrant who says I should know what everything costs’. His approach to pricing was to decide what he thought the market would bear, and charge accordingly. Grumbling bitterly he made a half hearted attempt to gather the information needed, but soon got bored.
After giving him various tasks, the hotel inspector left him to it for a while. It quickly became obvious that the most important thing she had asked him to do – get his head round his accounts – was the last thing he had in mind. He could be seen on his hands and knees polishing the floors, servicing the rooms, hoovering, doing the garden. Anything except go near the accounts. ‘I don’t have time for that – I’m too busy, I do everything myself, and there are more important, urgent things to get on with.’
The sad thing is, his attitude is typical of many entrepreneurs and business owners. Back when I used to advise garages and gas station owners, I found that several of my customers simply stuck all their paperwork in a large box, unfiled, unsorted and unread, and handed the box to the accountants at the end of the year.
These tended to be the customers whose businesses lurched from crisis to crisis, and had to pay cash in advance for their tanker deliveries because the oil company couldn’t trust them. The people who couldn’t understand that if you want to run a business, you need to understand basic business management principles, as boring as that may seem. Either that or hire in someone who does have this knowledge.
And it’s just as important for business success in an online business as an offline, bricks and mortar enterprise.
Do you know what you should be measuring in your business? What do you measure? And how often? Do you know if you are making a profit or a loss, and by how much? How well do you understand concepts like working capital, cash flow, assets, liabilities and debtors? Do you know what a balance sheet is and why it is important?
If this all sounds likes gobbledygook to you, then do yourself a favour and get some basic training or coaching around business finance. There’s plenty of good information to be found just by googling ‘free business finance information’. According to an article in USA Today, around 85% of businesses fail within the first year of existence. Some statistics suggest that it’s nearer to 60%, but even so, that is an awful lot of failure, and pain. So what’s the main reason small businesses fail? Because their owners don’t spend enough time understanding what they need to do to manage the businesses.