We have all heard the alarming statistics about small business failure rates, however, how do we give ourselves the best chance to avoid becoming part of this statistic? Working with small business clients on a daily basis I can now say that not too much surprises me. While every business is different and has its own specific nuances, the same issues tend to plague many small business owners causing them to fall into similar traps.
1) Product & Market
As simplistic as it may seem a firm understanding of your product, the need/want it services and your ideal consumer will put you in a prime position to move your company forward. It will not only assist you directly target your customers but will also identify other players who operate in the same space. While you may have a great idea or product if there are multiple competitors offering similar services it may be difficult and costly to differentiate yourself in the marketplace.
2) Capital Requirements
I would have to say that about 80% of all individuals who engage us to start-up their business significantly underestimate their initial capital requirements. Costs can quickly add up, legal fees, accounting, design, advertising, recruitment, rent, equipment and inventory to name a select few will likely form part of your first few month’s outgoings. Entrepreneurs by nature are optimistic, however, this often causes issues during the initial start-up phase. Sales typically fall below expectations as they are slow to gain momentum, exacerbating cash flow shortages and stalling company growth.
3) Owners/Partners & Employees
Typically when people start-up a new business they involve those close to them, their friends, family, colleagues, etc. Admits the hype and excitement on their new venture they often fail to look objectively at situations and act emotionally to scenarios. This leads to business partners and employees who act in positions either well above their ability of even worst individuals who work in roles inadequately defined or not required. Unless the primary reason for establishing your business is to provide employment to your friends and family members, take a step back evaluate the situation and ask yourself whether this decision is good for your business, would someone else not personally involved with this individual make the same decision?
4) Cash Flow
We have all heard the old saying ‘cash is king’, well in small business cash flow should be your first, second and third priority. Many small businesses fail on this point alone. While it is great to look at a Profit & Loss statement and see increasing sales, remember unless they are converted into cash it is somewhat irrelevant. This issue is especially evident in those who offer credit to their customers. Offering credit may be a common part of your operations, however, should always be done with caution. Never extend credit past levels you are comfortable with and always be sure to look for red flags and early warning signs that customers are in trouble. Don’t be afraid to cease work or require ongoing progress payment to minimise your risk.
Unfortunately, we no longer live in a world whereby people adhere to their word. That is why it is important to document and formalise your relationships. Be sure to include all relevant information including; detailed scope, deliverables, fee structure, time requirements, conflict resolution and finalisation. While, you will never be able to cover off every single variant of what might transpire, be vigilant as this will likely save you significant time and dollars at a later point.
6) Business Development
We all know it but, spending time on your business, rather than in your business is the only way to grow and develop your operations. Many small business owners fail to comprehensively understand this and get bogged down in their day to day operations, making comments like they are too busy to do [insert activity here]. This is a common self-sabotaging mindset, think of your business like a carousel, unless you jump off at some stage you will go round and round into perpetuity. That is why it is imperative to dedicate time to working on and developing your business; this may be as simple as reviewing your financials or developing a new marketing campaign.
7) Time Away
There is a reason employers are mandated to provide full-time employees with a minimum of 4 weeks annual leave per year. Not only does this time away improve safety and productivity but also allows employees time to rest and rejuvenate and spend time on recreational activities. We all get into small business for different reasons. However, many (myself included) were under the impression that being your own boss would allow for greater flexibility and work live balance. The reality, however, is that running your own small business commonly involves increased hours, stress and can impact negatively on your family and friendship if you let it. Be sure to regularly take time away from your business to relax and unwind, I promise you that although you may think that without you, your business will turn into turmoil, it won’t, delegate, and enjoy your time off.