During our Business Improvement Programme, one of the areas we explore is the common pitfalls that many business owners face day to day.
Research has indicated that there are some common reasons for businesses failing. We feel that it is important that you are aware of the common reasons for business failure, which primarily impacts on your cash position. If we are aware of the pitfalls, then we trade with our eyes open and work to avoid such issues or obstacles.
So here are a few of the areas we explore:
- Not enough capital – you should forecast your financial requirements and ensure you have the finance to support the growth of your business
- Growing too fast – plan your growth steps. Do you have the cash to fund the work for new customers whilst you wait to get paid?
- Hiring the wrong people – It is important to have good people around you and it is a mistake investing and then persisting with the wrong people. Identify and take action to remove them from your business as soon as possible.
- Lack of experience – Have a plan to identify your experience or skill gaps and plan to build a team that compliments you and brings other experience or more experience to your team.
- Too few customers – this could be a result of overestimated sales figures, know how you are going to win clients. But too few could make you too reliant on those clients.
- Setting prices too low – you may get known for being the cheap and cheerful supplier or later finding it difficult to increase the prices
- Poor financial controls – you should know your numbers and how your business operates at all financial levels. How many sales make up my income? What is the direct cost of delivering the product or service? What are my overheads and what trends are you experiencing? Making sure you are not taking out more than the business can afford to pay you
- Bad debts – have a proactive way of collecting your money for work completed. How can you ensure your customers pay on time? What is your credit control procedure? Will you send statement reminders, letters or make calls to collect the money?
- Poor control of your overheads – continually review your overheads to understand the spend, identify the unnecessary expenditure and consider ways of reducing the overheads and improving your profit margins.
- Competition – be aware of what your competition are doing and how they are reacting to change, or even reacting to you entering the market place.
- Poor communication with staff – how will your staff know what is expected of them? how will you communicate with them? Perhaps face to face or by email circulation?
- Health issues of the key people – what provision will you make to ensure your key people stay in the best possible health? Will you have healthcare plans? a stress policy? How will you know of any issues that may impact on your business?
- Bad management & Poor supervision – how will you manage your people to get the best results
- Poor communication with suppliers – how will your suppliers know your expectations to be met? How often will you review your terms etc. If you have cashflow problems, how will you communicate these, as putting your head in the sand is never the long term solution.
- Poor communication with customers – How will you know you are continuing to meet the expectations of your clients? How will you know your business with them is under pressure from a competitor?
- Bad luck- yes suffering bad luck is a contribution
- Poor planning – fail to plan, then plan to fail