Starting and building a business is often described as a journey. Like all worthwhile journeys, it has its ups and downs. It’s inevitable that along the way, we’re going to make some mistakes. Most of the time that’s okay – after all, making mistakes contributes to our greatest learning. However, it is also true that some mistakes are veritable pitfalls that even the smartest small business owners don’t seeing coming. And, some of these can be pitfalls from which a small business cannot recover.
It helps to not only learn from experience but also from the mistakes of others in order to avoid blunders that can cost you, your business:
When cash flow isn’t a priority
A talented carpenter opened a business fitting kitchen cabinets and started to do really well. Whether the work was managed by the client directly or by one of the builders who frequently contracted him, he enjoyed a reputation for doing great work on time and according to budget, and became sought after. However, due to the project nature of the work, it could take 60 to 90 days for his bills to be paid. The lack of cash flow started to hamper his work flow, as he needed to fund materials upfront to get started on a new job. He started to lose work because he couldn’t take on jobs as he couldn’t afford the materials, despite having significant funds owing to him. It doesn’t matter how much money you’re making on paper. If you don’t have cash on hand to meet your costs, your business can sink quickly.
When recordkeeping is slapdash
Two brothers opened a film equipment hire business in their city which was developing steadily as an international production destination. Demand was highly seasonal due to the region’s long, dry summers that offered reliable shooting weather. Like others in the industry, the brothers’ business depended on booming during season in order to get through the quieter times of a year. To most intents and purposes, they managed their business well, except that they didn’t bother much with keeping records. This caught up with them in their fifth year of operation when they experienced a rash of equipment failure in the peak of season. If they had kept proper track of the equipment hires they would have been aware that much of their sound and lighting gear had been due for maintenance and services at the same time, which could have been well-managed during the off-season. Instead, hiring out faulty gear in high-pressure peak season put them out of business. Diligent record-keeping is crucial to being able to make sound decisions and to plan ahead.
When inventory stagnates
One season, a fashion designer who owned and stocked her own boutique invested in yards of chiffons and silks to create a particular range she had in mind. However, before her seamstresses began to bring her new designs to life, the business received a lucrative global order that required chambray and chenille fabrics. Not wanting to give up on her original ideas, the designer rented storage space for the fabrics she couldn’t use at the time. But this wasn’t a once-off occurrence. In a few years, the designer was spending more on storage a month than on the rental of her production facility. Stale inventory not just ties up the money you spent, it also keeps costing you money.
When collections are passed over
At a busy vet’s practice, the assistant who does the billing found it hard to get information from the vet about what must be charged for before the vet was already seeing the next patient. So, she often emailed clients’ bills after the appointment rather than ensuring that they settled accounts at the end of their consultation. Before long, the vet had bills that were outstanding for 30 to 180 days, and this rose because the assistant was also uncomfortable about making collection calls. More often than not, a small business needs a clear debt collection plan that is diligently carried out.
When employees aren’t heard
The owner of a new neighbourhood bakery refused overtime pay to her employees. She expected that her staff would innately understand the necessity of, and accept a baker’s odd hours. She was a highly talented baker and she soon attracted a loyal customer base. However, she was beset by the problems of having an unhappy and constantly changing staff. It was starting taking its toll on customer service, when the latest disgruntled employee formally reported her business to a government commission protecting the legal rights of workers. The subsequent investigation and lawsuit floored the baker and she closed shop. It’s vital to understand that your business’s success rests on your ability to attract and retain top employees. If human resources is not your area of expertise, get help from a consultant.
When you won’t delegate
A freelance website designer became so busy that she formalised her business and employed a young and upcoming designer to work with her. However, she found it hard to let go of any of the work that was coming in, and assigned only mundane tasks to her new assistant that didn’t actually ease her workload. When winter came, the business owner was struck down by a virus and couldn’t work effectively because of three weeks’ bed rest. Still, she turned nothing over to her capable assistant and four deadlines were missed. Her business was hung out to dry before she recognised that she couldn’t do everything, and that if it were to survive, she had to delegate. It doesn’t matter if someone can’t do something as well as you can. Sometimes, it is more important for something just to be done. It’s impossible for a business to grow when the owner is still acting like a one-man band rather than like a team leader.
When you offer something your customer doesn’t want
The owner of a plant nursery was on leave and visited an old friend on his farm. The friend, a keen amateur botanist had cultivated an incredible range of Barberton Daisies. The nursery owner got very excited about the idea to cultivate a much wider colour range of the plants. He invested in seeds, growing medium and the construction of a new dedicated growing area. He painstakingly cultivated Barberton Daisies in all kinds of colours. However, his customers resolutely bought just the yellow, pink and orange, as they always had and he lost money. It’s important to remember that it is not about what you want for your customers; it’s all about what they want from you. Don’t invest before you’re quite sure that you really know what your customers want.
When costs get out of your control
An influx of revenue, especially for a small or developing business, is a rather heady thing. If you don’t respect the parameters of the budget you have set, you’re going to blow it; and a fleeting boom won’t save you from consequences. With more cash in hand you may well be tempted to buy that extra oven, or offer to hire your best friend’s daughter – even though these expenses are not in your budget. It’s a guarantee that costs go up when revenue increases. Make sure you don’t spend your profit on expenses over and above your budget.
When you don’t invest wisely in marketing
A successful restaurateur moved from the city to a small town and opened her trendy plant-based restaurant, which had done very well before. But her new customer base was mostly unconcerned about big city food trends and disregarded the restaurant. Her marketing consultant advised her to run an integrated marketing and PR campaign that would educate her target market on both the health benefits and the deliciousness of her plant-based menu with plenty of specials on offer to encourage trial. But the restaurateur had always relied on word-of-mouth and good media reviews to reach target customers and she was reluctant to invest in an on-going multi-faceted campaign. Instead, she placed a couple of ads in the local paper and paid for web banner ads on the town’s tourism website. She also printed and distributed flyers. Over a couple of months, she had made a substantial investment in these ad hoc communications but they did little to help attract customers. She decided she was throwing good money after bad and closed shop returning to the city with a serious dent in her capital. A new business depends on wise investment in an integrated and on-going marketing effort in order to become established, and a piecemeal approach to marketing often ends up costing you much more.
When you haven’t planned for the unexpected
The usual and easy access to a hardware store and a hairdressing salon was closed unexpectedly due to a road works project that was to go on for two months. The authorities did establish a detour route so that determined customers could still get to the businesses but walk-by and drive-by trade was cut off. Both businesses relied on daily sales and suffered a dramatic loss. The hairdresser had a contingency budget that he could draw on to survive the disastrous two months, but the hardware store owner had no emergency money and went out of business. Every business needs to have a disaster recovery plan which includes access to finances in case disaster strikes.
If you can recognise yourself in any of these scenarios, it’s time to make a change. Don’t fall into the trap of thinking ‘it can never happen to me’. If you are currently making any of these mistakes, you’re putting your