The 5 Biggest Business Mistakes And How To Avoid Them
Discover the 5 biggest mistakes made in businesses of all sizes. These mistakes can ruin your business, big or small. This article tells you what they are and how you can avoid them.
There are common mistakes made by all companies and, whilst they can leave a nasty dent in a large corporation, they can totally ruin a small business. These are the five biggest mistakes commonly made by companies of all sizes and what you can do to avoid them.
1. Not managing cash
This is the single greatest cause of business failure and it's what keeps most entrepreneurs awake at night (and if it doesn't, it should!)
Your cashflow is an absolutely essential part of your business. If you have too much going out or not enough coming in, then you're heading for trouble. It may sound obvious but it's still the most common failing of companies of all sizes.
The challenge for any growing business is that there is usually a gap between what you pay to your suppliers and employees and what you get back in from your customers. Most business owners are painfully aware of this when they start their business and sales are few and costs relatively high. However, as sales begin to grow, it's easy to take your eye off the ball and forget this gap. And whilst your sales are growing your costs are also increasing and your ability to switch off those costs at short notice becomes more and more difficult. And then you meet a slowdown in your sales or your customer payments and all of a sudden your bank balance tips further into the red than it's ever done before. And your business can go from boom to bust almost overnight.
The only way to avoid this is to keep strict control over your cash and monitor it passionately. If you have a CFO or FD, even part-time, they can help you here. Never lose sight of the importance of collecting your debts as soon as possible and always keep a careful eye on what's going out, what's coming in and what you're committed to. And make sure you have a system for forecasting your future cash position, especially if you're growing fast.
And if you don't know how to do it, find someone who does, quickly.
2. Poor marketing
Unfortunately it's not always the best products that win through in business. There are many great inventions that have fallen by the wayside because they simply weren't marketed well enough. And usually it's because there was a competitor out there doing a better job of the marketing, even if they didn't have a better product.
Marketing is about how you communicate what you do to your potential customers. And it's about evoking the right emotional responses in those potential customers. If you're out there pushing the great features your product has, you'll nearly always lose out to the competitor who tells the market what the product will do for them and how it will make them feel.
Of course, if you don't do any marketing then nobody will know you exist. And if you jump straight into great big, expensive, scattergun campaigns, then you'll just be pouring cash down the drain.
To succeed you need to concentrate on focused, targeted, emotional, benefits driven marketing and PR, then you'll find the whole selling process will come so much easier. And that means your business will grow. And how will that feel?
3. Hiring the wrong people
Hiring the wrong person can be one of the most costly mistakes you make. It might be a sales person who can't sell, an accountant who can't add up, or a senior manager who tries to steal your job and take over the company.
When you think about the costs of hiring there's a lot to consider. You've got the recruitment fees; the time and effort you put into the recruitment process; the employee's salary and benefits; the tax, training, equipment and office costs that you have to cover and the development and training time. And then, if you realise you have to get rid of them because they're not working out, there can be more time spent going through the process of removing them, the cost of notice periods, additional benefits and often some form of payoff so that they won't sue you.
And then you have to start all over again, hiring someone new, having wasted a huge amount of time, effort, energy and money.
Get your hiring process in tip top condition and spend as much time as it takes to get the right person. Don't settle for the best of a bad bunch and don't just pick someone and hope they work out. Know exactly what you're looking for and design ways to test the candidates to ensure you get the right people. If it takes a day of testing, then do it, rather than commit a huge chunk of your resources based on a couple of brief chats that pass for interviews.
Check references, research the candidates on the internet, check their previous employers and look for ways to verify what they say. If should come as no surprise that not everyone is completely honest in their job applications.
4. Losing control
There are many ways that a business owner can lose control of their business. Sometimes it's over-delegation of essentials like payments to suppliers. Sometimes it's over-reliance on a management team that have a different agenda in mind. Sometimes it comes through raising finance and giving away too much of the company to investors.
As a business owner, it's rare that you'll find someone else who will care as much about your business, customers, staff and investors as you do. It's a great idea to bring in a management team to run your business for you but don't be surprised if they have their own agendas and career aspirations, which may not always include you.
You can't do everything, and there comes a point when you have to trust other people. The key is to make sure they know what you expect from them and to ensure you've got a way of monitoring what they are doing.
Control is invariably about information and the ability to make decisions. When you have good information you can see what is really happening and then you can take the right decisions. This can be information about what's being spent and what's being sold. And on what terms. It can be information about any significant agreement, deal or commitment that the company is entering into. Create great management information systems that really tell you what's going on in the business.
Always be careful of anyone who seeks to put themselves in a position of control over your business. That includes staff, investors, other directors, suppliers, customers and banks. Think about what you're giving away in any agreement and look for ways to protect yourself and stay in control if you want to protect the value in your company. The moment someone else can make decisions about your business then you've lost control.
5. Forgetting about the customer
Lastly, one of the most common mistakes made as a business grows larger is forgetting about the very customers that supported the company's growth in the first place.
When you start in business you tend to stay close to your customers. You're building a reputation and making sure you deliver first class service. You'll often be on first name terms with many of them and know exactly what you've sold to them.
As you grow, the gap between you as the business owner and the customers can grow larger and larger. And as it does, they can stop meaning so much to you because you start to see them as just names and numbers on a report rather than people you're providing a service to.
And as that disconnection grows, it can be easy to forget what it was that brought the customers to you in the first place. The personal touches that made you stand out from your competitors. And after a while your company becomes just another commodity provider and your customers start to drift away to the competition.
Always remember who put your business where it is today. It's your customers and clients who pay your bills, your salary and who provide the value in your business. If you come to sell your business, it's going to be your customers (current and future) who are going to be supporting the value of your company.
Keep in touch with your customers. Get out and see them. Talk to them and listen. You'll discover a whole lot more about your business and you'll make your company stand out from the crowd. Keep your promises and always deliver the best possible service you can and you'll build a loyal customer base that will stay with you.
Of course there are many more mistakes that can be made but if you can avoid these 5 then you've got far more chance of your business surviving and thriving.
Article Tags: Business Owner
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ABOUT THE AUTHOR
Andy Warren is the Managing Director of Marshall Keen Ltd. He is a chartered accountant and successful CFO, FD and entrepreneur with extensive experience in M&A, Corporate Finance, Business Growth and Exit Strategies. Marshall Keen http://www.marshallkeen.com specialises in providing flexible CFO services and part time FDs to early and mid stage businesses, particularly in the tech sector.