Many small business owners set up their businesses with grand ideas and dreams of a thriving empire and early retirement.
A few years down the line, things may not be going to plan and being an SME isn’t quite what you had hoped for.
Management of your business from the outset is key, with planning; both financial and market wise, often being somewhat overlooked in the beginning.
Below are 10 things that cause a business to fail and how to avoid them.
1. Cash flow
Micro-manage your cash flow. Poorly managed cash flow is one of the main reasons companies fail.
Find out how you can manage cash flow in our post 4 steps to better cash flow management
2. Liquidity
Not to be confused with a lack of capital (which can reduce options but shouldn’t be a prime cause of SME failure).
Lack of liquidity caused by bad debts and failure to keep good credit control can, and will, chip away at the cash used to run the business on a day to day basis that keeps it trading.
To combat this make sure you stay on top of people who owe you money.
3. Realistic expectations
Your payment terms may be 30 days, but some customers may have other ideas and push your credit terms to the limit. Others may pay immediately.
Base your expectations on the worst case scenario, so that your cash flow can cope with late payers.
4. Being greedy
If your business is thriving, it can be too easy to take a little extra out here and there as there is ‘plenty of money’ in the pot.
Contingency budgets and driving your profits back into the business is a prudent way of working, especially for the first few years as your business get established.
This ‘slush fund’ will help you to deal with unexpected costs with minimal disruption to your business whilst also allowing for future expansion plans.
5. Financial understanding
Many business owners have the ideas and passion to set up a business but lack the business and financial acumen to make it work.
If you struggle to understand the financial side of the business, utilise the services of someone who does. A good business consultant can be key to helping you achieve success if you are not ‘financially minded’.
It’s not a weakness on your part and shouldn’t be seen as such but make sure you have people in place to guide you.
6. Understand your market
Don’t career headlong into setting up your business without thorough research of your target customers, competitors, demand and the market you wish to position yourself in.
Planning in the beginning will save problems later on down the line.
7. Pricing
Be realistic about your pricing. When conducting research, understand your product’s price point and where it will sit in the market.
Being unrealistic about how much your product is ‘worth’ (under or over estimating) can be a downfall to any SME. Research research research.
8. Not adapting
As an SME it is vital you keep your finger on the pulse when it comes to the market and your competitors.
The smallest change can have catastrophic effects on your business should you either a) not notice or b) choose not to react to a change. Whether it’s a change in demand or your competitors driving price changes, keep on top of your market.
9. The wrong people
Employing people is challenging for any business and even more so for an SME. The wrong person within your business can have a major effect on how your business runs.
Where possible, take your time in selecting the right people. Research them, follow up on references, work with them collaboratively where possible before taking the step to employ them.
Freelancers can be a great solution for SMEs as you are not bound to them month in and month out. You can use them as much or as little as you need without committing to long term employment costs with them.
10. No plan B
If your business is not thriving as you had imagined and you feel that you are struggling to make it work, always have a Plan B ready to turn to.
There is no shame in admitting Plan A isn’t working out as you’d hoped, Plan B could save your business should the unexpected occur.
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Next steps
If your business is having problems because of any of the above, we can probably help…
Just give us a call on 0800 975 0380 for a no-obligation chat with one of our experienced business advisers.
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