7 business mistakes

7 common mistakes of start-up businesses

Posted: 18th March 2015
Most articles written about business mistakes are aimed at young entrepreneurs setting up with a new business concept or idea. These are ‘Apprentice’ type people who want to take over the world and become rich and probably famous. These articles normally consider mistakes such as lack of market research or taking your eye off the competition or even setting your sights too high.

But the reality is that most small businesses are set up by individuals who already have a working knowledge of their market. They are not trying to change the world or do something different, but they want to do what they know and perhaps do it better than their competitors. They don’t do market research or even consider the competition - they just give it a go. Their main driver for starting up on their own is not kudos or even money but a burning desire to be their own boss. 

Most owner-managed business men and women that I know are working significantly harder than they would by being employed and many could probably earn more if they were employed. Plus they are happy to take on the stress and hassle of running their own business.

This article is aimed at those people, the silent majority of hardworking souls who are not looking for a 5 year exit strategy or to float on the stock exchange, but want to earn a living to support their families and get a buzz out of doing it themselves.

Unfortunately, over the years I have seen many small business owners set off with the best of intentions but fail to make it work. The reasons for such failure are invariably the same and I have highlighted below what I believe to be the commonest causes of those business failures:

1. Lack of Capital

Starting in business is not cheap, even if there is no capital outlay there will still be costs, many of them unexpected.

Properly put together Financial forecasts will certainly help by detailing these costs and giving an idea of the amount of capital and ongoing working capital that the business requires. Even if these are not prepared by an accountant they should be properly thought through with an experienced third party, be it a businessman, banker or family member.     

2. No Idea About Sales and Marketing

The business people that I am describing here have probably been working in their business for a number of years and either through necessity e.g. redundancy, frustration (knocked back on promotion) or even dare I say it vanity (they can do it better), they have decided to go it alone. The person may be an engineer, or a printer, a designer or a recruiter and technically they may be great at what they do and they may produce a great product / service. When I started my business I believed theIf I build it they will come’ philosophy.  I believed that my company’s service levels were the best in the industry (and still do by the way) and by being the best customers would appear out of thin air.  I was in for a nasty shock.

Our clients loved us and rarely left but there just weren’t enough of them to justify my investment in these great systems and people. Marketing became all consuming from then on.

Any business that does not sell or market their goods or services in some form (preferably in a number of different ways) is hanging by a very shaky nail. They may have a great customer base to start off with but markets and businesses change, and that great customer might not be there forever. Any business that does not look to grow will inevitably stagnate and potentially fail.

If a manager does not have the requisite selling skills then it is vital to either learn them (fast) or find and employ someone who has those skills.
  
3. Drying up of working capital

This is a major reason why businesses fail and should not be underestimated. A business may have strong sales and be making money but it can still run out of cash. It is vital that the cashflow is analysed in detail at least in the first year. Bank balances should also be monitored carefully ongoing to ensure that there will be sufficient cash in the business to pay suppliers, people and taxes. 

To ensure that cashflow is optimised, customers should be chased consistently and professionally for payments, and supplier terms should be negotiated to be as ‘flexible’ as possible.  If you run a business that holds stock, then a system should be put in place to manage stock and to ensure that old/obsolete items are moved.

4. Poor financial management

As stressed above it is vital that a business knows:

1) That it is making money
2) That it has the cash resources to continue to trade. 

An accountant friend of mine once described a business without monthly management accounts as being like a car at night without headlights. If you can’t see where you are going you won’t see obstacles or problems ahead and a collision, at some point, is inevitable and potentially disastrous - also the faster you are driving / growing the more chance of a crash! This is one area where many businessmen go it alone but it is the one where you must get professional help. Yes, it’s a cost, but it’s imperative and vital.

Paying for professional advice from your accountant will never be money wasted.  

5. Head in the Sand approach to problems

In every business life there are problems. Running a business is a roller coaster both emotionally and often financially.  All too often I have seen business managers either just ignore very obvious problems (declining sales, customers not paying, increasing costs) or pretend that the problems will get better when there are no signs that they will.  An obvious and common example of this is where sales are falling in a bad market and rather than react to this, the manager just sits and waits for the sales to improve – invariably they don’t or at least too late for it to do any good.  

It’s often hard to face brutal realities but in business it’s essential. Taking professional advice is often difficult to do as it feels like opening your soul to the world and perhaps admitting mistakes.  But running a business is a journey of self-discovery and if times get tough you must swallow your pride in order to survive – bite the bullet and talk to someone who can help you.  If all our clients came to us with their problems before we had to find out about them, their lives (and ours) would be much easier.

6. Trying to do everything

Some of the best business men and women I have come across aren’t particularly good at selling or marketing, or finance, or HR but they know someone who is, and they either employ them or use their services.  Sam Branson (Richard’s son) recently said of his Dad “I don’t actually think my dad has any business skills”.

He went on to say that the key to Branson Senior’s success is that he is passionate about doing things well and he knows and understands people. Branson surrounds himself with clever and capable people. You may not have his resources to employ people directly but you can buy ‘bits’ of expertise from experienced and quality consultants and agencies. Running a business successfully is as much about knowing your weaknesses as knowing your strengths and finding people with the ability to plug the gaps in your skill set.

7. Lack of planning

This has got to be a fundamental to starting any business. All the mistakes from 1-6 can be avoided by adequate planning. It is often anathema to business owners to plan; their instinct is to ‘just do it’.

However, if a businessman can bear to spend some time (preferably with an accountant and a marketing agency) going through what they want to achieve and how they are going to get there, they will be prepared for most of the stuff that business life will throw at them. It amazes me how some people can start a business without even considering the basics of how it is going to be set up, and how it is going to survive and grow. 

Planning must involve financial planning and if a business starter does not have the skills to put together proper cashflows and forecasts then they must find someone who does. 

It must involve marketing planning. Deciding on a target market is crucial, trying to be all things to all men is usually a mistake and competing with major players head to head is a hard call;  far better to be a niche player with specialist skills or products. 
 
A successful business is normally the result of a combination of hard work and good luck.  If you are thinking of setting up in business I wish you all the luck in the world but as Samuel Goldwyn once said “the harder I work, the luckier I get”.  

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