Whenever there’s talk of a small business failing, people immediately blame the economy. But the fact is that even when the economy is doing well, people take on more risk and leverage because the prices are rising and there’s money to be made.
So what’s really to blame for business failures?
In our experience working with a lot of businesses around the country and helping them turning things around, often a business finds itself in distress simply due to mistakes the Directors and CEOs make in managing the business.
Dealing with the ‘unknown unknowns’ in small business
Back in 2002, Donald Rumsfeld said this during a U.S. Department of Defense news briefing:
“… there are known knowns; there are things we know we know. We also know there are known unknowns; that is to say we know there are some things we do not know. But there are also unknown unknowns – the ones we don’t know we don’t know.”
As a Director or CEO it’s important to be aware of your own strengths and weaknesses. But how well do you know the ‘known knowns’, ‘known unknowns’ and ‘unknown unknowns’?
Let’s face it: as much as we’d like to say otherwise, as business owners and Directors we don’t know everything. But being unaware of the things we don’t know can sometimes be a good thing. Directors and CEOs should always be learning to keep the organisation moving forward. They also need a great support team, which should include their trusted adviser (accountant).
6 common management mistakes people make in small businesses
So what mistakes could a small business’ management team be making that would lead to its demise? Here are six mistakes we commonly see:
1. Being autocratic.
Having one person making all the strategic decisions for a small business can be either really good or really bad. If the CEO calling the shots has a clear vision and great leadership skills, it can be a real benefit to the organisation. But if their decisions always seem to be a mistake they could end up doing more harm than good.
2. Combining the roles of Chairperson and Chief Executive.
Having one person taking on both of these roles means there’s no independent accountability.
3. An ineffective Boards of Directors.
Not having an effective Board of Directors in place can lead to bad decisions about strategy, planning, risk and controls.
This can be a result of:
- a weak chairperson
- a lack of participation from non-executive board members
- the board members lacking diversity and/or skills
- poor communication among board members.
4. Ineffective management.
A manager’s role in a small business is rarely questioned. But in many cases it’s a mistake not to question what they’re doing. There’s more to management than just dealing with things and looking after people. They should also be continually looking for improvements, efficiencies and value they can bring to their small business.
5. Management neglecting the business’ core business.
While diversification can be a good thing, management still needs to keep an eye on whatever produces the most revenue for the business (often referred to as its core business).
6. Lack of management depth.
For a management team to be effective, it needs the right people with the right skills and abilities.
By avoiding these management mistakes, your small business has a much better chance of staying in business—no matter what the economy is doing.
Can we help you avoid making these mistakes in your small business?
If you’d like more information on avoiding these mistakes, or need a hand getting out of financial difficulty because you made some, don’t hesitate to get in touch with us.
Oh, and about this post’s “stupid” headline
Of course, we’re certainly not labelling small business owners, Directors and managers as “stupid”! In case you were wondering… the headline is a tongue-in-cheek reference to the “It’s the economy, stupid” catchphrase from Bill Clinton’s successful 1992 Presidential campaign.