Business Success or Failure Is 100% Your Fault

 Nobody starts a business with failure in mind. Yet small business owners by themselves rarely do what needs to be done to avoid failure. Small business failure statistics are all you need to look at to realize most small business owners don't do the right things when it comes to starting and running their business. Many fail in the first 5 years and even those that are able to survive the first 5 years are likely to fail before they reach 10 years.

With each small business failure, there are devastating consequences for the small business owner and his/her family. Most small business owners put every penny they have and can get their hands on into their business not to mention the time, energy, and personal sacrifices they make. The devastation caused by their business failure goes far beyond just them. It extends to their community, their state, and the country. A staggering amount of resources and opportunities are lost due to the vast number of small business failures. Sadly, business failure can be avoided by understanding why it happens and doing the things necessary to elude it.

Why It Happens

Michael Geber author of The E-Myth Revisited states in the forward of his book what he believes to be the primary reason:

"The problem with most failing businesses I've encountered is not that their owners don't know enough about finance, marketing, management, and operations - they don't, but those things are easy enough to learn - but that they spend their time and energy defending what they think they know."

In other words, Mr. Geber believes small business failure happens because the small business owner thinks they know more than they do about business.

During my professional career as a business executive and consultant covering 30+ years and more than 120 consulting engagements with small business owners, I have seen this be true time and time again - the owner is 100% the reason for the struggle and failure of his/her small business. Small business owners like to practice insanity which is defined as continuing to do the same things over and over expecting a different result. There are three bad traits common to small business owners causing their habitual "insanity":

Bad Trait #1 - Think they know what they don't know.

Here's an example of this from one of my past consulting clients James who is the owner of a residential and commercial contract painting company. James made the following statement when I asked him about his method for pricing work: "My father started this business back in 1956 and taught me everything I needed to know about it. I was 15 years old when I began working here. The way I price is the way my dad taught me. It has always worked and it is the only way it can be done for this business!"

At least 5 years before this conversation James's company began losing profitability and every year the losses had increased. James believed his dad had taught him everything he needed to know and he would never need to know or do anything different. He was wrong yet he practiced insanity by continuing to do things just like his dad taught him somehow thinking he would get a better result. He only got a better result once he changed and learned that there was a different and more effective method.

Bad Trait #2 - Suffers from the Field of Dreams Syndrome:

The Field of Dreams syndrome is based on the movie by the same name. It is the belief that customers will come just because you have a business.Mike, the owner of a limousine service company, made this statement when I asked about how he marketed and advertised his company's services: "I am listed in the yellow pages and I rely upon word-of-mouth from past customers. I've never had to do anything else to get business. The phone use to ring all of the time. I don't understand why the phone isn't ringing like it did. I have the nicest, newest, and cleanest vehicles out there."

Mike believed people would call his company just because it existed and had (in his opinion) superior equipment. Not the case as he was experiencing with a continual decline in sales every month.

Bad Trait #3 - Belief that outside forces cause most if not all of their business problems.

George owns a residential roofing company. Here is what George said to me during our initial discussion concerning the problems experienced by his business: "I don't know how you can help me, Carroll. My company does roofs and nobody is getting their roof done. And those that are getting their roof done are hiring the jack-leg running around in his pickup truck charging less than what my material and labor cost. I can't compete against that guy. I'll be glad when the economy picks back up so things will be back to normal."

George believed there was nothing he could do to improve the condition of his business. It was all the jack-leg's fault and what the outside world was doing it to him and his company. George didn't think there was anything he could do to gain control over any of it. Not true! George in time learned that he was the only one who had the power to change his company's condition and make it better.

There are other "bad traits" held by small business owners but they all are due to the small business owner and his/her erroneous beliefs.

How It Can Be Avoided

The reality of being a small business owner is you are the sole reason for your business's failure or success! To correct the most common problem of small business you must be willing to do what Michael Jackson's "Man in the Mirror" song says - stand in front of the mirror and commit to the person you see there to do what is necessary for your business's success. If you don't, you, you family, community, state, and country will certainly experience the devastation of your business failure.

It does not matter where your small business is in its life cycle you must do the following to ensure your business's success.

1. Bury Your Ego and Be Open Minded.

Ego makes you close minded and erects a brick wall that keeps you from receiving and using available and valuable assistance such as advice, knowledge, information, and help. No one is perfect and knows everything there is to know. If you allow your ego to make you believe you "know it all " and are right when in fact you are not, you will miss out on important opportunities to improve. Removing your ego will allow you to learn and discover what you lack and need for improvement to take place. You will also find people more willing to help and provide you with things that will be of benefit to you.

2. Create a Passionate Vision.

The majority of small business owners I have worked with have a business which provides them with nothing more than a job. They have from the beginning structured their business to do nothing more than that. Now, they hate their business and are extremely unhappy. Their business is boring, takes all of their time, and provides them with little satisfaction, sense of accomplishment or fulfillment. If you want to be successful and happy you must do something you can be passionate about. This passion needs to be focused on accomplishing something specific not just for you but for others as well. Think about people who have been wildly successful such Steve Jobs, Bill Gates, Oprah, and Dr. Phil. The one thing they have in common is their overpowering drive (i.e. passion) to change the world in a positive way. You can do the same once you create a passionate vision for your business.

3. Learn to Learn.

Never have I worked with a business owner who had a business without competitors. The typical business owner I work with has problems and their competition is doing better than they are. When asked why they think they aren't performing as well as their competition they say something like "the competition is much bigger and can afford things I can't such as newer equipment, more advertising, or better location". These are all superficial reasons and represent nothing more than excuses by the business owner. The reality is their competition is succeeding because they have figured out how to be more successful. You must learn to do the same. If you don't believe you can do it on your own then get help and get it now before it is too late.

The business world is a highly competitive place. Changes are taking place in all fields and industries worldwide at an increasing the rate of change. To survive and succeed as a business owner you must continue to learn, do things in new and innovative ways, and be passionate about what and how your business serves its customers. If you overcome the bad traits of most small business owners you will be not only have a successful business you will also be happy and enjoy your business more than you ever thought possible.

One of the easiest and fastest ways to overcome any bad traits you might have as a small business owner is to get help from a professional who trains small business owners to be successful. You can receive such help in a unique, fun, fast, easy and affordable way by taking my 12 session practical "Master of Business" owner training program.

Free Tips on How to Start a Small Business

If you are searching for a way to start a small business, then you must be ready to study the 5 tips in this article. This write up will give you the summary of what is needed to starting a small business of your choice.

1. Identify The Business Opportunity.

The first thing to do is to identify the best business opportunity around you. The primary aim of setting up a business is to make profit. If you can identify what people are looking for and you provide the solution through your business organization, then you will make good profit at the end of trading period. You can venture into buying and selling of goods and services, raw material, building material, super stores, sales of food stuff, retails and wholesale. Starting a business is not the problem but how to manage the firm to bring good returns at the end of the day is the major problem. Many people lack the skills of building a strong business empire.

2. Prepare A Business Plan.

Good business plan can help you set up a company. Ideal business plan include the amount needed to start a small business, the form of business to set up, how to source for funds, where to site a firm, competitors analysis and market demand. Before you collect loan from a bank, the bank may ask of your business plan.

3. Get A Good Business Name.

Good business name is one of the best ways to start a small business because it differentiate your company name from other business name. It provides easy identification to your customers or clients. Good company name is an asset to the company. You must create enabling environment for the company to provide good services to the people.

4. Become A Member Of Trade Or Professional Association.

If a firm is set up, make sure you register the business under some related trade or professional association. As a member of trade association or organization, the firm will benefit from periodic training and seminars that can add value to the operation of your business enterprise. If you are looking for more funds to expand a business, one of the requirement before some lenders grant you loans is to become a member of some top trade or professional bodies in that country.

5. Locate The Business Near The Market.

A business is said to be successful and profitable if it is located near the market place, near raw materials and targeted customers. If the business enterprise is close to targeted customers or clients, the business ventures will make good sales and more profit will be made at the end of the period. It will help you to reduce the cost of transporting goods to the market and maximize profit.

Lastly, if you really want to start a small business, you must be keeping adequate record of the company account. Separate the company bank account from your personal account. Make sure you keep proper record of all your business transactions on daily basis. This will help you to save cost and you will know if the business is making profit or loss.

So Many Business Debt Issues, So Few Solutions

As a business debt expert, I am often asked questions by business owners that run the gamut of complexities that occur when a business or an owner is faced with debt or credit issues. Rather than list the too many- to-name scenarios, I have selected some of the most frequently described situations, which are real life business issues asked by real people (names and details may have been changed to protect identities) and some answers I have provided to highlight options or provide solutions.

In a downsized economy, many businesses are focused on buying out competing businesses, or selling to long time employees, often assuming or assigning the business liabilities as a part of that transaction. The intention is honorable, however the execution may not be as simple as it seems to pay off someone else's debts.

Question: "I manage a small business with five full time employees. I want to buy the business, it is a LLC, but has a significant debt comprised mostly of credit cards and a bank line of credit. The debt is around $80k. The owner is ready to go bankrupt. I want to purchase the business and wonder if I can arrange to pay less each month. We pay nearly $2500 a month on the debt and I would like to close the accounts and pay around $1000 per month. Can we tell the creditors that we will pay a reduced amount each month, take it or leave it? It is a good business worth saving."

Answer: When buying a business, you will not automatically assume the debt, as the prior owner has likely signed a personal guarantee. Whether or not the owner is still involved with the business, they are responsible for payment. However, if you are assuming payment of the accounts, you should call the creditors with the owner on the line, and have them authorize you as payer. As well, you need to ask to be put into a hardship payment program as you have described the need for a lower payment. This may or may not be commensurate with your suggested budget; however, most credit card companies will offer this, although some not until the account is delinquent. The purpose of these programs is to lower interest and payments for a period of time usually from 9 months to 5 years. At some point you may also elect to negotiate settlements with the creditors to pay the accounts off at a discount. If you do assume responsibility for payment, make sure that no one including your new employees will have charging privileges and that the lines are closed from further activity. This will help prevent "issues" as you are attempting to pay off the balances.

Even more common is the notion that many small business owners have, which is if they have incorporated and can elect to no longer pay for the businesses debts and there will be no recourse by creditors against them personally. What they fail to realize is that since most bankers weren't born yesterday, have issued products whereby 9 out of 10 require personal guarantee. Therefore even if the business should fail, it is the responsibility of the owner to pay, regardless of his loss of income through the business.

Question: "My LLC failed and I have two business credit cards of which approximately $45k is owed. I just finished a six month hardship program. I'd like to know if my personal credit score will be affected if I stopped paying on these debts. I haven't paid my corporate renewal fees for two years. I didn't use my social security number to open these accounts only my business ID number.

Answer: If you have not already discussed renewal of the hardship program with your creditors, you should if you want to continue to pay the debt down. Many will extend this up to 12 more months. As well, it is difficult to say if you did or did not really personally guarantee the lines. Most banks require this even if you never provided a social. Simply defaulting and hoping they don't come after you personally is risky without a plan to settle or file bankruptcy at some point. Most creditors are aggressive with collections and may possibly file suit to secure payment on the account. If you are able to offer up a settlement amount that is less than what you owe, you might want to so as to prohibit further collections actions.

Question: "If a business is incorporated and has outstanding debt that has been sent to a collection agency and now is threatening to sue in court what happens to the debt if we just close the business? I understand that they may try to collect against us personally. If I am married and we have our assets in both of our names and my wife is not part of the business, can they still pursue our personal assets?"

Answer: Depending on the type of business debt it is important to identify whether or not any security such as collateral or personal guarantees exist. This will determine the leverage a creditor may have in the collections process. Just so you are aware if you have not established an independent business credit score (which reports separately than your own individual score) and acquired trade lines using the corporation's creditworthiness only, than chances are high that some personal guarantee exists. If this is the case, the debt will not go away if the business does as it reverts to the guarantor. Secondly, collection agencies cannot sue you; this is usually only done by law firms conducting collections. They also must be located in your state of residence to file suit. If you live in a community property state such as California, and there is a personal guarantee then your combined assets could be jeopardized if a lawsuit occurs and judgments are awarded. One thing you can do if you are in default is attempt to negotiate a discounted settlement if you have funds to do so. You can also engage the help of a commercial debt negotiator to do so for you, or if you are being sued than you must hire legal counsel and address the matter promptly.

Question: "I own a small home based business but it has not provided any monies for the past year and I have decided to file the business as non-active. I have two credit cards, each of which are now over their credit limit and I am paying minimal payments personally to keep the creditors away. However since it is a small business credit card problem, the creditors have started to place 60 day past due on my credit report and my scores have tanked. All I am doing is sending good money after bad as I can't pay the full amount. Would I be better to let these two credit cards go through to collections and then settle with them for a smaller amount since my credit score has now gone so low I can't get any personal loans in any case?"

Answer: To clarify, your creditors are not reporting to your personal credit score because you have a "small business credit card problem" but rather because you have most likely placed a personal guarantee on the credit cards, which makes you responsible for their payment whether your business is solvent or not. If you elect to settle your accounts on your own, you must understand that creditors do not typically discount accounts that are "current". Also, there are inherent risks, included in this are escalated collections efforts or even legal collection action. You must also be prepared to settle when your accounts are considered to be in serious default with lump sums of money. If you owe a significant amount (usually considered over $10K) you might want to get a reputable debt settlement firm to handle this for you as they are likely to have relationships with creditors that can yield greater discounts on your accounts. Just know, that everything has a price, and you must decide the upside (like saving money) or downside (like sacrificing credit scores, possible taxation on forgiven debts and/or other possible risks) of how best to handle your accounts.

And lastly, a most common issue is what to do when you are unable to pay on a Small Business Administration (SBA) backed loan. These loans are typically issued by financial institutions and are usually secured by a collateral commitment by the borrower. Non-payment of these loans can be very risky and collateral may be repossessed as required by the bank to collect.

Question: "I had a small LLC business which recently closed. I owe quite a bit on my SBA line of credit through a major bank. I haven't been able to make payments and the account has been turned over to a collection agency. They have threatened me with taking my assets, charging me a ton of money in fees and for legal action. I have replied with a letter requesting to work out a monthly payment which I can afford. I got a letter from the agency today stating that I individually and my company have sufficient assets to warrant civil legal proceedings. The letter also noted that I couldn't sell any equipment from the business. I had planned to sell it to pay them as it's in storage. I am working part time and am willing to make payments on this but I can't come up with what they want. Should I file for bankruptcy? I'd rather not".

Answer: "Based on the information you provided, I can suggest that if the debt has gone to a "collection agency" not a "law firm" they themselves cannot sue you, nor should they be using that as a threat. If it is a law firm, particularly one located in your home state, they may have those intentions and you should consult with a lawyer to discuss your options. That said, the "collection agency's" only job is to collect what is owed, and as much of it as they can get as a settlement. They usually won't make payment arrangements. You would need to get the original lender to recall the debt and try to work something out with them directly. If you cannot, than depending on what you owe, you might offer up a lump sum settlement for a fraction of the amount and ask for terms to get that paid in 6 months or less. As for the sale of assets, you may have pledged them as collateral and the bank may be required to attempt the sale on your behalf before the SBA will repay the guarantee (backed portion) on the loan. Either way, the sale of most business equipment rarely yields enough to repay debt in full and whether you or they sold it there would likely be a deficiency which you would be responsible for. Don't offer up any more information to the collection agent as they are going to apply every angle to pressure you for payment. Also you must consider if your SBA agreement is attached to your real property as an asset. Get in touch with your local SBA office or the original lender to see if they are still willing to work something out so you can get back on your feet and not fall further behind with the loan.

If you are faced with these or similar issues, I recommend seeking the help of a professional, either an attorney, CPA or a business debt counselor who can assess your situation and help prescribe a course of action. Remaining proactive and getting all the facts can highly increase your chances to take appropriate measures to resolve the issues and land your business back on its feet.