It’s no secret that inadequate cash flow is one of the main reasons why businesses fail in Australia. Dynamic Business only recently talked about this issue last week, with new research commissioned by H&R Block found that the biggest struggles for small businesses across Australia are: ‘cashflow’ (35%) ‘marketing effectiveness’ (30%) ‘lack of support’ (19%) Read More…
7 Survival tips to avoid common business mistakes
Mon 22 February 2016 - 3:38 pmAdvice | Cashflow | eCommerce | Marketing | Small Business | Starting | Strategy
Growing a business is a special talent, part science, part art and doing it well can be one of the most rewarding life experiences. It can also spell financial disaster from which it is very difficult to recover, when things don’t go well. In this article we discuss 5 common mistakes made by businesses.
Cash is the life-blood of every business. Business owners know as much. Expanding on that metaphor, when the cash flow stops, the business can no longer survive. Even though every business owner knows this intuitively, putting it into practice becomes problematic when faced with the many decisions which they must make.
An effective cash flow calculator takes into consideration the minimum cash necessary to support basic operations for a minimum of six months. This figure represents the cash management cycle: 2 months to acquire a new customer, 2 months to do the work. Add another 2 months for the billing cycle from cutting the invoice until the funds are in the bank.
Acquiring Unnecessary Credit
It can be exciting to have a bank pre-approve a generous credit line to a business in its early growth stages. But it’s when such opportunities present themselves, that business owners need to ask themselves whether such an infusion is absolutely critical. A key question business need to ask themselves about funding projects this way, is what the return on the investment will be and when that return will be realized.
It’s critical to consider whether now is the right time for pet projects, especially when with money that comes with a finance charge and interest rate that has to be paid on top of the other monthly bills.
Financing from non bank sources further exacerbates this issue.
Excessively Low Pricing
Every business needs sales to survive. A pricing structure that doesn’t cover costs causes two problems. First, it creates discount expectations in new customers, who will continue to expect the below cost pricing. When the accountant puts his foot down that selling at these prices means bankruptcy, it causes the second derivative problem — customer dissatisfaction and mass exodus.
It’s best to implement fair pricing upfront and have fewer customers paying the actual costs, than to try to leverage a sizable customer-base which pushes the business further into the red with every purchase. Selling below costs for prolonged periods is not a viable means of constructive finance.
Unnecessary Business Acquisitions
What about new laptops for the entire sales staff, and administrative assistants to answer phones, prepare the spreadsheets, take messages and write emails?
They’re fine. So long as they’re absolutely necessary and return at least their value. Remember, overhead staff and early adopter technology upgrades cut into profit margins and should be acquired sparingly and put off for as long as possible.
Unnecessary Risk Taking
During one interview, a CEO of an entertainment company boasted that he could make decisions quicker than his colleagues. He said that taking risks is part of the game and some people have the stomach for it and the rest sit on the sidelines and wish they were in his C-Suite office. The next time I went to interview, there was a new CEO who was significantly more cautious when it came to pulling the trigger. He had a huge mess to clean up from all of the reckless decisions which his predecessor made, which included unrealistic promises to previously satisfied customers and staff which would never be kept.
A Business Plan
A business plan is your roadmap to success.
The primary focus of a business plan is to create a written guideline of the economic viability to a related market. Furthermore, this plan should have all aspects of a business venture evaluated and analyzed with the realization of consumer concerns and benefactors.
Want to know how to avoid mistakes in a business plan? The plan should include the following: A product summary, business description, market overview, all aspects of funding, the small business failure rate in your niche, and a reasonable but realistic risk vs. reward.
On average, 25% of small businesses fail in the first year, fortunately having a business plan in an arsenal increases the chance of success and avoids business mistakes.
Tip: A common business mistake is not researching a niche enough to know if it’s a lucrative business for the allotted amount of time and funds.
Finding a market with a reasonable amount of competition and being able to compete against it is essential to business survival. A business offline or online has general subjects to research.
How to avoid being a part of that small business failure rate?
- Extensive keyword research and selection
- PPC (Pay Per Click) Ads or equivalent alternative research
- SEO (Search Engine Optimization) utilization and techniques
- Analysis tools for Ad campaigns and traffic
- Google “Business results” (for local traffic)
- Great website structure, evaluation, and superb content
- Know competitor offers
- Create frameworks
- Start mailers or ad campaigns
- Know and research key brand differentiators
- Do events and collaborations
- Research locations and targeted consumers
Research on these topics revolves around what the competition is producing. Evaluating each topic is crucial for business survival with these methods. Remember, applicating and implementing knowledge improves overall performance and health in business building.
Risk taking is a must for someone whose hobbies include sky diving and bungee jumping. In the business world, it undermines everything that the entrepreneur has worked so hard to build.
About the author:
Sarah Smith is a small business owner, currently learning about marketing and internet use. Aside from working on her own business, she likes to use social media, and read travel books.
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