3 unexpected reasons why businesses can fail, and how PEO’s can help.
[sws_pullquote_left]If certain tasks outside of your core business become unmanageable, outsource them to professionals. Sometimes, the best thing an owner can do for his business, is to get out of his or her own way. [/sws_pullquote_left] There comes a moment in the trajectory of every successful business, start-up, and entrepreneurial venture when employee management tasks become unmanageable. Even the most committed, passionate, and energetic business owners often find themselves frustrated by the likes of recruitment, employee payroll, taxes and a thousand other employee management tasks. However, thanks to Professional Employer Organizations, or PEO’s, that needn’t be the case.
The Devil is in the Details
It’s not the big picture stuff that can suffocate a business, it’s the small things, the routine things, and for many owners, the things they don’t necessarily think about or want to think about at all. The big picture stuff is relatively easy. After all, you wouldn’t put in the effort to start a business unless you had a great idea, product, or service to begin with, and a passion to see it through. Most business owners assume that if they have a good business plan, make a good product, and can reliably generate a steady stream of income, that their enterprise is bound for success. In reality, having a good business plan is what gets a business started. What really keeps the momentum moving is everything else many new business owners forget to plan for, including payroll, taxes, employee insurance, and yes, a multitude of unpredictable things that can put the brakes on this whole grand adventure.
The devil, as they say, is in the details. Or in this case, it’s buried under a stack of tax auditing paperwork and employment forms.
Unfortunately for everyone involved, the more time company leadership spends on these little distractions, the less time and energy they have to invest in their core business. One of the biggest complaints small businesses have is about paperwork. Each year, businesses and citizens expend over 8 billion man-hours satisfying compliance requests from the federal government alone. For small and medium-size businesses, that means a large amount of time, energy, and resources better spent elsewhere are being effectively diverted from core business applications to what amounts to a pile of paperwork.
This is when owners look to PEO’s for help.
Professional Employer Organizations (PEO’s)
The transition of any business from relatively small and manageable to something larger is a critical juncture, a test in the trajectory of every business with big ambitions. It’s a threshold many seemingly thriving businesses don’t pass.
The statistics speak for themselves.
For half (50%), that threshold of failure is met within the first twelve months. But for the 5% or so that survive, the next four years don’t look much rosier. The U.S. Department of Small Businesses Administration reports a failure rate of 95% of new businesses within the first five years. Perhaps more surprisingly, many of these casualties don’t shutter their doors because business is poor. Most of these failed ventures are built on solid business plans. In fact, you need one if you even want to get a small business loan from the government in the first place. Rather, what kills many businesses after the first five years is an inability to deal with success. That’s right, growth and expansion bring their own unique set of difficulties, ranging from simple unpreparedness for the rigors of running a successful business, to downright financial ineptitude. But that doesn’t explain the failure rate. Surely, most entrepreneurs start off with a plan and some modicum of experience in their chosen markets. Poorly run firms wouldn’t last more than a few years, even in good economic times. So what explains the chronically high rates of failure that plaque businesses even into their tenth years of existence and beyond?
One of the biggest killers of seemingly solid establishments often boils down to poor risk management, often in relation to employees and employee management. Choosing the right PEO partner or HRO provider can alleviate those risks by outsourcing those critical, but time-consuming duties, to experts. To look at it another way, picking the right PEO drastically reduces the risk of failure.
Top 3 Unexpected Reasons Businesses Fail
Growth (and the inability to deal with it)
It can be a little hard to believe that too much business can destroy you, but for some businesses, it can. Making a poor, last-minute hire to deal with unexpected demand, or getting entangled in a government audit of your financial books can be extremely costly and often hard to simply absorb. The federal Small Business Administration (SBA) lists unexpected growth as a major reason that small businesses fail. Surprisingly, there can indeed be such a thing as “too much of a good thing” unless it’s thoughtfully managed.
Delusions of Control (and a belief that you can do everything yourself)
One of the biggest challenges for entrepreneurs is to just let some things go. If it’s not critical to your core business, find someone else to do it for you, do it better, and let yourself get back to what matters. Let go of the attitude that you must have hands-on control of every little detail, and every single decision.
Maintaining the Status Quo (and keeping poor management in place)
A common problem faced by successful companies is growing beyond management resources or skills. As the company grows, you may surpass certain individuals’ ability to manage and plan. For many businesses, that person is quite possibly you, the owner. If certain tasks outside of your core business become unmanageable, outsource them to professionals. Sometimes, the best thing an owner can do for his business, is to get out of his or her own way.
Don’t let the details get in the way either. Success in the dynamic small business space is never guaranteed. But opting to really focus on what matters, and finding the right Professional Employer Organization (PEO) partners to deal with the rest, is certainly a good step in the right direction. In a world where failure is the norm, aspiring startups and small businesses really can’t afford to waste time, money, and manpower on peripherals. Word to the wise: pick a PEO, and choose wisely.