“Bad things happen when good people pretend nothing is wrong.”
The recent spate of corporate failures in South Africa should be a stark remind to all of us to have another close look at our own businesses. Why do some businesses succeed when others fail? Is it just a matter of luck? Unfortunately the reality is that there are common mistakes that kill many businesses before they ever get off the ground.
Give yourself a fighting chance by avoiding these 7 common mistakes. Many of these points have been discussed in previous Business Survival Toolkit articles but they are nonetheless worth repeating.
1. No business plan. Knowing what your business will be and how you will sell your products or services are not enough to keep it running. You need to have a business plan written out, including the following:
- your short and long term goals;
- the business’ finances for wages, equipment, vehicles, etc.;
- your target markets; and marketing strategy.
Having a well-considered business plan will keep your business on the straight and narrow.
2. Growing too fast. A growing business is a healthy business, right? While we all want growth; growing too quickly can be a fatal error. Wanting to be the first to market with a new product, taking on added overhead, or trying to prove to anxious investors that you’re growing can all spur you to overextend your business financially. Set realistic goals and expand only as needs dictate.
3. Overspending. Many new entrepreneurs burn through their startup capital before their cash flow is positive. This often happens because of misconceptions about how business operates. If you’re just starting out, seek out seasoned professionals you can turn to for advice before making big expenditures.
4. Lack of management experience. Small business entrepreneurs usually come into their industries with little to no knowledge of handling the multiple facets of a business such as financial management, employee relations, advertising and other essential responsibilities. Educate yourself through short business and finance courses, or hire managers who have expertise in the fields where you are lacking.
5. Poor cash flow management. Cash is the lifeblood of any business, and there will be no business once that runs out. Therefore, it is imperative that small business entrepreneurs practice strict financial record-keeping so that every penny is duly accounted for. Knowing exactly how much money is going in and out of your business will correctly guide every decision you make.
6. Poor administration. Who is keeping score? Many business owners do not pay sufficient attention to their debtors and their stock. Poor working capital management will suck cash from a business. If customers are not paying you, or are not paying you on time, they are using your money. If you have excess stock or slow moving or obsolete items, you have your money tied up in products that are of little or no use to your business. Just as you should be monitoring the cash in the bank, you should also be carefully watching debtors and stock levels.
7. Ignoring the competition. Customer loyalty doesn’t just happen — you have to earn it. Watch your competition and stay one step ahead of them. If you don’t take care of your customers, your competition will