Ten Business Mistakes that Kill Companies

Ten Business Mistakes That Kill Companies

About half of all small businesses fail within the first five years.

The U.S Dept. of Commerce tells us that about half of all new employer firms survive five years. The half that don’t survive often fail because of business mistakes caused by their owners.

Each of the errors discussed here has been the cause of business failures, but thankfully there are ways to avoid every one of them.

Poor Cash Flow Management

No matter what a business makes ‘on paper’ it takes real cash to pay the bills. Income and expenditure cash flows don’t often coincide, and there can be times when a business doesn’t have enough cash on hand to meet its commitments.

Ensure the business can always access enough cash to meet regular outflows like salaries, loan repayments and taxes that must be made on predetermined dates. Arrange a source of finance for those times when extra cash is needed.

Ignoring Employee Concerns

Ten Business Mistakes that Kill Companies - ignoring employee concernsThere is a legal framework within which every company operates. Employee concerns about issues such as sexual harassment, safe working conditions or discrimination of any kind have the potential for disaster.

Resolve HR issues without delay, and get expert advice if needed. It might seem expensive, but the cost of ignoring employee concerns can be a lot higher.

Sloppy Recordkeeping

Good records are a useful decision-making tool. Some key records include equipment maintenance histories, personnel information, and details of income and business expenditures.

Without these a small business owner has no way of knowing how the business is performing or what needs attention. Every business needs to keep relevant, timely and accurate records.

Too Much Inventory

Inventory is an expense. It’s a common business mistake to have too much stock on hand. Inventory levels should be high enough to meet anticipated demand, but know suppliers’ lead times and keep stock at minimum levels.

Not Collecting Outstanding Debts

Without a systematic plan for collecting outstanding amounts a business can amass debts that are too old or too expensive to collect.

Successful businesses have a firm credit policy and make sure their customers understand it. Initiate collection efforts as soon as a payment deadline is missed, moving from diplomacy to demands the longer the debt remains unpaid.

Offering What the Market Doesn’t Want

Make sure that the business is offering what the market wants. This is especially critical when developing or considering new product lines. Too many resources can be invested in a ‘loser’ and the company never recovers.

Market research is vital, even if it’s conducted informally. Trade publications, business magazines and even lunches with suppliers and major customers can be sources of valuable market information.

Allowing Costs to Blow Out

Too often the focus is on increasing income and not enough attention is paid to costs. Costs have to be controlled regardless of how much money the business is bringing in.

Successful small businesses know what their costs are and don’t have to tap into profits to meet unexpected expenses.

Being Unwise with Marketing Dollars

Create an integrated and ongoing marketing plan and work to it. Marketing is not successful if it’s done in an unplanned, haphazard fashion.

Have a marketing plan that’s affordable and stick to it. Trying to ‘make a splash’ is a common error that can leave a business with inadequate marketing support the rest of the year.

Not Delegating

en Business Mistakes that Kill Companies - not delegatingSmall business owners can’t and shouldn’t do everything in the company, including making all the decisions. Turn some of the work over to staff members and let them get on with the job.

It’s an old maxim but a true one – business owners need time to work ON their businesses. If they spend too much time working IN them there’s not going to be enough time directed to developing the business and making it grow.

Not Planning for Emergencies

Every business needs financial resources to keep it going if disaster strikes. This can be a natural disaster, the failure of a key supplier, or some other unforeseen event.

A source of funds should be available that will cover the expenses of staying in business when something happens that stops the company from trading.

The right kind of insurance can provide the money needed to keep a small business going but only if it covers the exact circumstances that have closed the doors.

Comprehensive Planning for your Business

Planning for a successful business has distinct dimensions and you can do a better job if you tackle each of these separately.

Strategic Business Planning

Firstly, you have to develop your general business idea into a viable business proposal. Secondly, you have to add specifics to the proposal by crystallizing and describing the details of what, where, who, when and why. Finally, you have to get ready to implement the proposal through scheduling the implementation steps with details of resource and time requirements, and setting milestones to measure progress.

The Business Model

Business modeling involves developing your initial business idea into a complete business proposal that can make money. During this process, you answer critical business questions such as:

  • What value will the business deliver to its customers?
  • Which specific segment(s) of the population constitute the ideal target group for this value?
  • How will the business be organized to create, market and deliver the value? This involves deciding upon your specific role in the network of suppliers, partners and distributors, and identifying the processes and activities that you will focus upon
  • What resources in terms of know-how, people and physical facilities will you need to function effectively in the selected role and carry out the processes and activities?
  • What will be the costs involved, and what significance will the cost structure have on business operations?
  • How will the business generate revenues sufficient to recover all costs and generate a surplus?

In addition to the above money-making questions, businesses these days have also to consider the social costs and benefits of the proposed business. Issues such as the impact on environment, employment and regional development can affect the operations of a business. Government regulations and public opinion have begun to restrict the unfettered freedom businesses had.

The Business Plan

Comprehensive Business Plan

Once you have clarified the basic issues involved for the success of a business proposal, you start making specific plans. The business plan answers the What, Who, How, Where, When and Why questions such as:

  • Who are the persons who will manage the business?
  • Where will it be located and what are the advantages of this location?
  • What specific products and/or services will the business deliver?
  • How will the business create, market and deliver the products/services?
  • What will be the costs of organizing and operating the business?
  • How will the money be raised to meet the costs?
  • What revenues and costs can be expected during, say, the first three years of operations?
  • When will operations turn profitable, and what profits can be expected?
  • What government regulations apply to the business and how are these being attended to?
  • What will be the impact on environment, employment and other social issues?
  • What progress have you made in implementing your plans?

The business plan is an essential document if you plan to raise funds from external agencies such as venture capital investors and lending institutions. The document will show to these outsiders that your plans are concrete and realistic, and have a good potential for generating returns. A business model by itself is usually insufficient to convince this hard-headed group.

The Project Management Plan

Once the essential requirements of the proposed business, particularly funds requirements, have been arranged for, the business plan is translated into a project schedule. The project schedule is a specific and practicable action programme that lists:

  • A sequence of activities developed after considering the need to complete certain activities before starting others (you can’t start on the superstructure until the foundation is in place, for example)
  • Resource and time requirements for the activities, including people, equipment and materials
  • Specific milestones that can be used to measure the progress of the project and ensure that it is moving at desired speed

Tools such as the Critical Path Method and PERT are used to create project schedules. Project management software has made it easier even for non-experts to use these complex scheduling techniques.

To Summarize:

A business model ensures that your business idea has been developed into a complete business proposal that can make money. The business plan converts the model into a specific and detailed action program that can convince investors and financiers. The project schedule converts the business plan into a series of correctly sequenced activities with details of resource and time requirements and milestones to measure implementation progress.

The total planning process has the potential to translate your vague business idea into a successfully operating business on the ground.