If you’re thinking about starting your own business, there are a few things you should know. According to Forbes, 36% of businesses failed within the first 2 years. According to other sources, this figure is much higher and is closer to the 50% mark. Businesses expected to make it past the 5-year mark are only about 5%. These figures are alarming, however, there are a few steps you can take to try and avoid it.
1. Are You A Craftsman Or A Business Person?
Whether you are a plumber or a photographer, the moment you become skilled in your craft is not necessarily the moment you should open up a business. Being great at what you do, doesn’t necessarily mean that these skills are easily carried over into a business concept. Many businesses fail even though the owner has an incredible skillset. What often happens is that business-related items are usually put on the shelf as they are not required to generate income, for instance, bookkeeping, administration, labor practices, etc. Sure, they may not have any part in the daily turnover, but falling behind on your paperwork could cost you a substantial amount of money later on. If you happen to fall into this category, the following steps may help you save your business before you even get started:
- Go for a business management course
- Sign up for a mentorship program
- Appoint a business partner who has some business savvy
2. You’re Going At It Alone
You are the salesperson, technician, delivery guy, administrator, receptionist, and cleaner. You work a 12-hour shift on a quiet day and your phone has turned into a hated device. You’ve lost your human touch, even though you know each call could be a great opportunity. You simply do not have the energy to take on new business anymore. Add to this the frustration that you’re not finishing your jobs on time, therefore, not generation enough income putting you right back where you started. What was once a passion is now slowly turning into a nightmare. Your family hates you and your friends have disappeared into the sunset, leaving you to face the music all alone.
- Appoint an administrator, bookkeeper, etc.
- Try to maintain some balance between the office and family time
- Delegate what you can to other people, permitted they have the right experience and training
3. Business Is Picking Up, But So Is The Spending
The dollars start to stream in and before you know it, you’ve upgraded your house, car, and lifestyle. Often, debt also happens to grow during this phase. Spending all your profit may seem like a good idea at the time, but that, unfortunately, means that you will need to rely on debt to grow the business. Also, if you happen to increase your lifestyle at this time, you run the risk of getting into serious trouble should your business or the economy go into a bit of a slump. Not only will you need some extra cash to keep the business going, you will also need to float your personal life. This usually leads to more debt and gets many new business owners into a lot of trouble. Focus on:
- Only purchasing goods that will improve the business
- Try to maintain the same lifestyle for at least the first five years of the business
- Be careful of “profit boosters” and “get rich quick” scams that may just leave you out of pocket
- Maintaining a steady cash flow in the business and keeping tabs on ad-hoc expenses, they could be bleeding you dry
4. Always Short on Cash
You don’t seem to have any luck with the banks as you don’t have a credit score and you also happen to have no start-up capital, so you decide to do things little by little. What ends up happening is by the time you get to sell your product, the time factor alone already ate up all your profit. You use the money from this gig to fund the next, only to find that you’re not moving past the break-even point. Starting up another gig is virtually impossible as you’re relying on the funds of the current one. This is a dangerous place to be in, especially if you happen to be dealing with a rotten client. Should your deal fall through, you have no money to fund the next gig. Starting up a new business without funding is possible, however, it will take a very long time to get off the ground if the business happens to have a high cost of sales. It will also mean your business is always at the mercy of each individual client. Before starting up, try to have:
- Before leaving your employ, save up at least 6 months’ worth of overheads to get you going
- If you don’t have the option, try to sell non-essential items like your second vehicle or your boat to generate some income for the business. Starting the business off well is easier than trying to save it later
5. Having More Than One Source of Income
You may be dealing with the head honcho at a factory that deals directly with a supplier, so you feel secure in your little cocoon. What you don’t know is that the main company is looking to make use of a different distributor, leaving your contact without an income and literally cutting you off at the knees. By diversifying your sources of income, you have a decent chance in remaining standing when a big deal falls through. Build enough sources of income by:
- Ensuring that no client takes up more than 30% of your debtor book
- Diversifying into different fields to ensure a steady flow of income
- Identifying what your bread and butter income streams are and continuously building on them
6. Spend a Bit Extra On Good Quality
There will always be that company that pops up from nowhere, looking to undercut all the quotes and trying to deliver the same kind of service. This is both dangerous and reckless. The pricing should match the quality of workmanship and products used to complete the job.
- Get the right staff to perform the job, you don’t want to re-do work
- Purchase good quality materials, you need to build up a solid reputation
7. Forgetting Who Comes First
It is very easy to grow a fat head and treat customers poorly, but do this often enough and you can kiss your business goodbye. If you happen to have any kind of competition in your field of business, it may just be worth your while to remember that the customer is king in your business. This will increase word-of-mouth, which is free advertising for you. Many business rely solely on referral business and when this dries up, either the product has become redundant or the customers have found a better offer elsewhere. Many customers are will to pay a bit extra for a decent customer experience. Retain your customers by looking at the following:
- Plugging the leaking bucket: find out why customers are leaving to the competitor and try to implement immediate change
- Send your staff (and yourself) on a customer experience course to ensure that the right message is conveyed to your customers
- Sell the product your customer wants, not the product you want to sell
By simply remembering to go back to the basics, many business owners can save themselves a lot of hassle. The closure of a business to the owner often feels like more than just a failure, especially if they’ve put in a lot of effort and/or money. Following a few simple steps may not be a foolproof measure in ensuring the business stays afloat, but at least it gets the owner one step closer.