10 Reasons Businesses Fail
Today we are going to talk about the top 10 reasons businesses fail.
Creating and running a business isn’t easy.
According to the Small Business Administration, 20% of businesses fail in year one, 50% go out of business by year five, and only about a third make it to ten years.
Running a home service business requires a lot more than just being good at the trade and good with people.
Because you need many skills:
- your trade
- inventory management
- truck fleet management
- technology systems
You need to invest in learning and be open to learn about and master that which you don’t like.
You need to hire people who know better than you at particular skill sets and trust their process and execution.
You may need to outsource where necessary, such as bookkeeping, accounting, marketing, advertising, and more might be better served as outsourced job functions.
The rewards of owning your own business can be fantastic and life-changing.
You can affect many people’s lives: those of your customers who you get to help daily and of your team members, whose professional skills you can help develop over time and enrich their lives.
There can be lots of personal relationships that develop as a result of your business too.
The benefits can be richly rewarding, but we all have to avoid the many dangers and pitfalls of owning and running a business to get there.
So let’s dive into the top 10 reasons why home service companies go out of business and do our best to avoid them ourselves:
Reason #1 Businesses fail is a lack of funding.
You’ve got expenses related to the jobs you’re doing, like tools, equipment, parts, products, and more.
But you also have new expenses like:
- Truck maintenance
- Rent for office or warehouse
- and more
You’ve got to have the startup capital to get off the ground and hold you over while the business grows.
You might need capital to grow trucks or inventory, in which case business loans might be a viable choice.
But before you take any loans, make sure you take care of the second reason most companies go out of business.
Reason #2 Why so many home service companies fail is because they’re not pricing their services properly.
You may be getting the work, but if your prices are too low, then it doesn’t matter how much work you’re getting. It’s only driving you out of business faster.
Man, I can’t stress this point often enough.
The great majority of you are pricing your services too low, which is a one-way ticket to going out of business, or worse yet, going into debt before you go out of business.
Stop using your competitor’s prices to set your own prices and start using real math, your actual expenses.
And not just job expenses. You have to include all the indirect costs of rent, utilities, insurance staff, trucks, salaries, profit, and everything else.
If you’re not doing that, get your CPA, get your costs figured out, and start pricing your services properly.
In our interview with CPA Meaghan Likes, she even suggested you can double your prices, lose 40% of your business, and now you’d probably still be profitable.
That’s a super simple path, and she was just using it as an extreme example that if you’re not going to dive into your numbers and give them the attention they deserve, then at least do that, and you might stand a fighting chance of surviving.
Check out those podcast episodes #2 and episode 15 and the books they recommend, like Profit First for Contractors and How Much Should I Charge? and start taking control of the most important part of your business’s health.
Reason #3 Company’s go-belly-up is failing to provide great service and value.
Competition is fierce in every business today. The Internet and smartphones have enabled everyone in your industry and somewhat near your location to be a competitor.
If you don’t deliver top-notch service, then you’re going to struggle to get repeat business, great reviews from customers, and referral business.
You may get the opposite in the form of poor reviews and no referral business, which will greatly impact your ability to grow your business.
Creating superior quality service takes excellent team training and has them on board with wanting to serve your customers and provide the absolute best quality possible.
If you don’t believe in it and lead by example, your employees certainly aren’t going to and they’re the ones who are interfacing and serving your customers.
Every company says the customer is number one, but very few companies run their business that way.
Superior quality starts with you and your team wanting to deliver it.
Reason #4 Is going out on jobs you should not be.
You need to identify which jobs have the best margins, lead to bigger jobs, and concentrate your marketing efforts on those services.
You should also identify which jobs lose you money or simply don’t make enough money compared to those that would better use the team’s time and resources.
Then just say no to those jobs and have someone else you can refer these customers to.
Reason #5 companies fail the inability to control expenses.
You probably should not be buying every shiny new gadget or truck for your company.
It’s very easy to get carried away with buying more than you need.
You need superior quality parts and products to deliver to your customers, yes.
But you may not need the absolute top-of-the-line equipment for every job function or those amazing brand-new trucks that you’ve always dreamed about.
You may not need the most beautiful office and warehouse in the world.
Is your inventory under control?
Do you have inventory sitting in the shop for who knows how long?
Do you know what’s being used and what’s collecting dust?
Poor financial management will drive your company to the poor house.
Get to know your numbers, review your profit and loss statements regularly, and see where you’re leaking money and tighten it up.
Get your inventory lean and mean and under control.
Be budget-minded everyplace you can without skimping at all on the quality of service you deliver.
Reason #6 Is poor advertising choices and the lack of tracking the success or failure of those ads.
Where you put your marketing dollars matter?
Today, everyone uses their smartphones or computers to find local service companies.
If you’re still using the yellow pages or other old-world advertising platforms, there’s a good chance you’re flushing money down the drain.
You should 100% be using call and form tracking to know what ads work and which ones aren’t.
There’s no substitute for tracking ad success, both online and offline.
If you’re not tracking, you’re shooting blindly, wasting money, and risking your company’s future as a result.
Reason #7 Is not staying connected to your existing customers.
It’s is several times less expensive to grow repeat business from existing clients than to try and attract new customers.
Yet so many companies we speak with just make a sale and move on to the next client.
That’s a sure ticket to putting a financial strain on your company and be forever dependent upon advertising or buying leads to grow new business.
You’re also missing out on growing an engaged email list, which can be an extremely valuable marketing tool for your company as well as a business asset for loans or if you want to sell the company one day.
So start using an automated referral system, an email newsletter, a VIP Club or annual service agreements, and an automated reputation management system to stay connected to existing customers and grow repeat business, referrals, and reviews.
Reason #8 – There’s no unique selling proposition that makes you stand out from the crowd.
- Why should anyone do business with you instead of a competitor?
- What sets you apart?
- What are your specialties?
- Exactly WHO is your customer?
- What do customers value in a service like yours?
- What is your ideal customer’s problem?
- What solution do you have for them and why is it better than alternatives?
- What factors influence their buying decisions?
Create an elevator pitch. Be able to tell anyone in one minute or less exactly why you’re the right company for your ideal customer.
Reason #9 Is not hiring the right people or giving them proper training.
It’s not easy to find great people who are good at their jobs and want to provide the best service to customers every single day.
Great people start with their attitude and willingness to learn and get better every day.
Great people start with excellent training and then trusting them to the process.
Reason #10 Is there are no standard operating procedures (SOPs).
Everyone is kind of winging it, and there are few or no consistent processes for anything.
Or maybe you have to butt in and tell everyone how to do everything or just do it yourself.
That’s not a company. That’s a failing dictatorship.
You can’t be efficient or deliver a consistent customer experience if you lack standard procedures for everything and trust your team to deliver.
Let your employees help create your SOPs and help to improve them, make them more efficient, and/or create a better experience.
Reward your employees for increased efficiencies and improved customer experiences.
Leadership is about training, recognizing efforts, empowering others, and trusting the process.
A Bonus for today is to recognize where you need help.
Like we said initially, there are many hats to wear and you can’t be an expert at most of them, never mind all of them.
It’s okay to need help and search for it.
Hiring a business coach who specializes in your trade might be an option.
Alright, I hope that helped some of you. Thanks for sharing your time and attention with us today.
Good luck out there and create a great day!