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Management

5 Reasons Businesses Fail

January 15, 2016

Keeping any business open is challenging, and CNC machine shops of all sizes are no exception. According to the Small Business Administration 50% of businesses fail within the first five years, and two-thirds fail within 10 years.

Sometimes business owners realize things are going the wrong way, but don’t know why. While there may be many reasons why a business gets in trouble, these five issues tend to be at the top of the list:

  1. The business starts out well with a good customer base, an adequate facility and plenty of work to keep the shop busy. Everyone focuses on the day-to-day operations and settles into a comfortable routine. Unfortunately, no one is thinking about the future. No one asks important questions such as: What if a customer goes elsewhere? What if the shop is no longer competitive? What if our costs are out of line?
  2. Resistance to change. Companies need to stay on top of the latest methods, technologies and best practices for their industry. Their successful competitors certainly are. The “If it isn’t broke, don’t fix it.” school of thought can be very dangerous. You should always be looking for ways to improve your operation, from the shop floor to the back office.
  3. Ignoring key indicators. In CNC machining we use a variety of data from tool offsets to statistical process control (SPC) to make good parts. Similarly, keeping a business operating successfully requires paying close attention to Key Process Indicators (KPI) such as sales, gross margins, net profits, material costs, cost-per-part, overhead and more. Failing to address concerns about the KPIs you identify as most important for your company will lead to many unhappy surprises.
  4. Not listening. If employees feel that the boss isn’t interested in their suggestions or observations, they’ll soon stop communicating. It’s a wise owner or manager who encourages input from his people, includes them in planning for the future and empowers them to act on ways to improve their performance.
  5. Managing resources. All businesses have limited finances, people and time. That’s why setting priorities is so important. Investing in smart, capable people is at the top of the list. Next, investing in technology and process improvement enables you to reduce production costs and improve delivery times. Don’t forget to allocate resources to finding new customers and strengthening relationships with current ones. Finally, manage your own time wisely. Owners tend to be hands-on and action oriented. Take time to plan how to best spend your time each day for your business and for yourself.
    Mercer 4