Over the past couple of weeks, we have looked at the issues of a failing business. Now, let us talk solutions: how do you prevent a business from failing?
Prepare for failure.
Does this sound contradictory in an article on preventing business failures? I think not. Too often, entrepreneurs are so captivated by their ideas that they cannot envision failure. And when it comes, it hits them so hard because they did not expect it. As a result, they are unable to adapt their business planning to the realities of the situation.
Develop a strong business plan
A strong business plan is one that adequately explains the business situation at the time of the business commenced. It articulates how you intend to succeed through your production, marketing, finance, etc., and details what you need to start. It also provides projections on how much you will spend and make over a period of time. Two things to note though: one, a business plan is not static – always review your plan against the realities on ground as your business progresses. Two, always overestimate your spending and underestimate your income. You are more likely to incur overhead costs and experience slow revenue growth than the other way around.
Watch the decisions you make
For every business, but most especially a business in its infancy, you might just be a one bad decision away from going bust. As such, it is important to carefully weigh your options before making decisions, even in times when you need to move fast. In times of confusion, outside counsel will help a great deal.
Cash flow is king
Contrary to belief, a business does not depend on profits as much as cash flow i.e. how fast the money comes in and goes out. If revenue comes in periodically and at a time you are nearly crumbling under the weight of debts, it is not a good thing at all. So keep an eye on those numbers and try to ensure there is a continuous flow of cash through your business.
Move with the trend, but still shape the future
Trends are your friends. If there is a trend in the industry or market that your business can ride on to profit, take advantage of it. However, ensure that tending product or service does not make you deviate from your core focus as a company. At the same time, be innovative enough to shape the future and if possible, start the next trends.
Hire employees slowly, but fire them fast
This is quite self-explanatory. Don’t be in a haste to expand your staff unless you absolutely need it. But once you see that they are not adding value to your team, don’t hesitate to let them go. Remember, your new business can’t handle too many poor decisions.
Build relationships with your employees
Especially for a small business or organisation, your employees are family. As such, treat them like family. Birthday gifts or small office parties are excellent bonding moments; also, be as un-bureaucratic as possible, maintain a flat hierarchy so that they don’t feel stifled and choked.
Value your first customers
Treat them like kings and you will not only enjoy repeat business, but they become unpaid marketers for your business. Keep in mind that it costs about three times as much to find new customers than retain existing ones – so it is also the economical thing to do.
Get a mentor
Unless this is not your first business or you have experience in the industry, there is a lot you will miss. Life is too short to make all the mistakes, so learn from those of others. A mentor will use his or her experience to guide you through and avoid the pitfalls they had.
With all these in mind, it is very possible to avoid joining the statistics of businesses that fail. It is very possible to grow your new business into a thriving, bigger one.