Business failure refers to a company ceasing operations following its inability to make a profit or to bring in enough revenue to cover its expenses. Many establishments have suffered this disastrous fate. Regardless of current economic conditions, small business owners can take several precautions to prevent the loss of all their time, money and effort in a failed business venture.
You can prevent such from happening to you by following the following tips…
Manage Cash Flow
Many startup businesses struggle with cash flow issues. These companies must maintain a balance between getting cash in the door through sales and covering their expenses. When a company experiences extended periods of negative cash flow, the effects on the business is the same as that on an individual who experiences a loss of blood flow: lethargy, incapacitation and eventual death. A fragile startup company must do what it can to bring in revenues while limiting expenses.
Develop a Strong Business Plan
A famous quote goes, “If you fail to plan, you plan to fail.” While no entrepreneur goes into business planning to fail, many of them start off failing to plan. A strong business plan is a vital outline for business success. This document details the path by which a company intends to bring in its revenues. With you plan as a motto in your business, the possibilities of failing is highly reduced.
Avoid High Debt
Loans, credit cards and other forms of debt can be a double-edged sword for a small business. Although most companies rely on some level of credit to get the capital they need to launch, the downside of credit comes when the time to repay the loans arrives. When a company spends most of its cash flow on repaying debt, rather than expanding the customer base or adding employees, it lacks the flexibility to keep up with the competition.
Make Accurate Projections
Many entrepreneurs are optimists by nature. They see that their ideas can change the world and adapt a positive outlook toward their endeavors. However, this optimism can also lead them to overestimate their potential revenues and underestimate their future costs. These unrealistic projections can lead business owners to make poor decisions based on inaccurate data. The owners must take off the rose-colored glasses and make accurate projections for both revenues and costs to keep their business dreams alive.
Carry out Frequent SWOT Analyses of Your Business System
A SWOT (Strengths, Weaknesses, Opportunities, and Threats) analysis is an examination of the internal and external areas of your business.
The aim of this exercise is to identify areas that are working and those that are not. For example:
- Strengths are good internal factors within the business. Things are working in this area. Therefore, develop this part of your business. Use it as a model to build on.
- Weaknesses are damaging internal factors. Something is not working properly. Perhaps it’s your sales and marketing strategy. Look at how to make immediate changes, do something different, or stop what you’re doing.
- Opportunities come from external factors and represent good prospects for the future. Capitalize on these ventures, and optimize them.
- Threats are adverse external factors such as your competitors. Set goals to make improvements in the areas of your business affected by this problem.
To prepare a SWOT analysis, begin by making a list of your identifiable strengths and weaknesses. Ask yourself where you would like your business to be in the future. Look at where you are now. Use the results of your SWOT analysis to design the goals you intend to accomplish and to develop a plan of action.
Not Knowing Your Competitors
If you don’t know who you’re up against in business, you’ll have a hard time growing. Just about every business owner has a competitor, but if you don’t know what they offer and how they work, how will your product survive?
“Customers need a reason to switch and the only way they’ll do that is if you give them a clear reason,” Meyer says.
Bottom line? Failure to learn about your competitors and set yourself apart from them will halt your growth potential.
Avoid selling on credit
When you begin selling to customers on credit, your cash flow will be immediately affected. For example, if you begin to offer credit, the cash that you would normally receive during this time will disappear. You will not have this cash to pay your bills, employee and suppliers. Your business will not grow.
No matter how well you know the clients, eventually, there will be someone/people who won’t pay. Whose loss?!
Lack of Funds
You’ve heard the phrase, “You have to spend money to make money,” right?
Well, it’s true in business. You need enough money to make it through each stage of business. During your infant stages, you need enough startup capital to keep the business afloat until it starts making money. Later on, when you’re ready to expand, you’ll need another pool of money to reach a new or bigger audience.
If you don’t have money before you need it, your business won’t grow. Whether you borrow money or get investors to support you, you need money in the bank to go through successive stages of growth. Avoid blowing away your sales on frivolities of family needs.
Believe in Yourself, and Prepare for the (Inevitable) Bad Times
When you’re up against unexpected personal trials that breed stress, your mind becomes muddled. Plus, your self-esteem could take a tumble, having an undesirable effect on how you see yourself.
“Doubting your abilities will impact your business unfavorably. For that reason, make use of personal problems. See them as lessons to learn from,” says David Christensen, a legal advisor who has counseled several individuals facing debt-related challenges.
Safeguard yourself by developing resilience. Understand that life comes with problems. Assess the situation objectively. Speak with a trusted friend or family member instead of ignoring the problem. Don’t be hard on yourself, and keep believing you can overcome the obstacles you are facing. Surround yourself with the right support network of people. Don’t give up.