HAVE you ever wondered why so many businesses fail to stay on board and really succeed? There are many factors at play here because running a business is no easy feat.
Most people haven’t got the stomach for it and that may be one of the reasons why many opt to just search for employment.
After all there is a saying in the English language that states, “better the devil you know than the angel you do not know!” I suppose the employer, though paying slave wages and working you till you drop, is a better option for many than that unknown sea of starting your own business, right? Wrong!
Within entrepreneurship lies the true financial success of our nation. If more Zambians and Africans in general could get into entrepreneurship, I believe we could see the true emancipation of our people. Why?
Because for as long as someone has to work and be at the mercy of a job and a salary, they will always be a slave – sorry to say this – to their salary!
So, today I want to briefly show you what you could do to ensure that what you plan to get into is viable and really going to stand the stress test of being in the business world out there.
Remember that the world is ruthless and without mercy, if you do not know what to do and how to do it, you will be beaten to a pulp and kept down permanently!
Apart from the obvious reason why businesses fail, of which I will be outlining shortly, most are not viable.
This means that they do not have the credibility to sail through all the challenges thrown at it.
So then, what are the common reasons why businesses fail? Firstly, the owners lack a burning desire to succeed at them.
The majority of people are not willing to put in all that is required in terms of time, effort and sacrifice to see their business take off.
Instead they would rather use shortcuts and half-hearted efforts to get the business off the ground.
With this kind of attitude, it is no surprise that they fail to run that business beyond the first cash injection. With this, it is almost a foregone conclusion that the business will fail.
Secondly, owners lack information about their businesses and the decisions necessary for its success. Many businesses fail in this area because clueless owners would rather consult other equally clueless individuals about business.
As the bible states, if two blind men lead each other, they will eventually fall into a ditch! In short, owners need to do their homework in order to ensure that they start off on the right note,
anticipate most challenges that will inevitably show up (as would be expected of any business regardless of its nature) and make the right decisions. It is true that many failures can be attributed to the wrong decisions based on inadequate information at the time.
Thirdly, the ones who overcome the first two challenges face the most daunting test, that of consistent cash-flow.
This for most businesses becomes the last strand that snaps, plunging the business into that abyss of bankruptcy. See, cash-flow determines the sustenance of operations and bridging finance.
I am now going to give you a layman’s view of what makes a business viable and attempt to explain it in such a way that a seven year old grade three pupil can understand it.
The business’ viability is tested by applying these three, profitability, liquidity and solvency.
Profitability is simply having more income than all expenses related to the business. Also, the business should be growing.
For instance if your initial capital was two bags of kapenta, not only should your two bags return, but you must also be able to pay for all expenses related to the acquisition of the kapenta, these being transport (wheelbarrow, bus fare), airtime, sales (at your nthemba) and time itself (how long it takes to sell the two bags).
Other hidden costs may be your marketing abilities and your presence to sell at the nthemba and perhaps even raise enough money to buy a third and a fourth bag within the shortest most reasonable time possible.
Liquidity is the availability of cash especially when you need to make those payments related to the operations of your business.
In layman’s terms, if for instance you go and buy your bags of kapenta, and then you come to the market and someone leaves a cell number and requests for you to call them to make the sale, then deliver the bags for cash to them at their home nearby, you should have enough money to make that call, negotiate and then take the bags, not get stuck and lose the business to your competitor who does it promptly.
If you are liquid, it means you can deal with all the operational demands your business will have without stalling.
Solvency is the ability for the business to pay for all its obligations whatever they may be either through liquidity or through the selling of acquired assets. This means that the assets (like stock, equipment etc.) are more than all the obligations or debts.
In layman’s terms, if something went wrong, like an accident and the owner is no longer able to continue the business, there should be enough from assets to pay off what is being owed.
Liquid (cash available) yet insolvent? In layman’s terms, is it possible to have a lot of money but still go bankrupt as a business?
The answer is a big resounding yes! A classic example of this in recent years would be Zamtel (before its current private state), which as a company dealt in a product that generated huge amounts of cash but their obligations (namely PAYE, NAPSA, terminal benefits, debt to banks and lenders, operational overheads etc.) were far greater than all its assets, sales and available cash combined.
Next week we conclude on business viability.