8 Effective Ways To Prevent Small Business Failure
- Revisit your business idea.
- Review your business location
- Startup capital
- Track and reduce business expenses
- Review your business plan
- Do more marketing
- Stop Credit Sales
- Provide excellent Customer service
- Keep accurate accounting books
Researchers have found that, at least, small business failure occurs in out of every 5 new businesses before their 5th year of existence.
Small business failure, which now cuts across all industries, is now a source of worry for many entrepreneurs.
However , you do not need to quit because quitters do not win and winners do not quit.
However, this article seeks to review your entire business processes and suggest actionable steps you can take to prevent your business from failing.
Review your business idea
Every business begins with an idea. Wrong business idea can make your business to fail.
For example, if you go into a business in which you have no skills, interest, training and experience, you are not likely to succeed.
Therefore, to prevent your small business failure, you should take the following steps:
- Find out if you founded the business on the right business idea.
- If you discover that you are in the wrong business, you should look for another business to put your money.
- If your business idea was right, you should go back to the drawing board to find out what went wrong.
- You can seek advice from your mentor or those who have been there before you.
Or better still, you can take your problem to a business management consultant to help you navigate your business out of troubled waters.
1. Prevent business failure: Verify your business location
Wrong location of business is one of the common causes of small business failure.
You need to find out if where you located your business was the best place for the business.
For example, you need to find out if the presence or absence of any of the following facilities was responsible for the problems your small business is facing:
- Good access roads
- Nearness to your target market
- good environment
During the review, if you find that you are in a wrong place, you can move your business to another location.
On the other hand, if the above factors are available and your business is still struggling, then it is time for you to find out where you got it wrong.
Good business location is crucial to the success of any business. Yours should not be an exception.
2. Review your startup capital
Another factor that can help you to prevent small business failure is for you to review your business capital.
For instance, if you are doing business with Insufficient capital, you are likely to have the following problems:
- Inability to meet customers’ needs due to stock outs
- You will not be able to compete in the marketplace.
- Suppliers will be unwilling to sell to you if you don’t pay cash
- You will lose your customers
- Plus, you cannot secure new customers
However, if the problem persists, you can source for funds from the following sources:
- Interest free loans from family and friends
- Join cooperative society
- Get financial financial assistance from government agencies that support small and medium scale enterprises.
However, you should not borrow money from bank to do your business, especially if your business has no track records.
Even when they agree to grant you credit, their interest rates are too high. And high interest rates can hurt your business before you know it.
3. Prevent business failure: Reduce Business Expenses
You can prevent small business failure by curtailing your business expenses.
To enable you do this, you need to clearly identify expenses that:
- are necessary for the business to operate optimally.
- expenses can be significantly reduced
- can be avoided altogether
The best place to identify these expenses is the Profit and Loss Account of your business.
Therefore, if you have not been preparing annual financial statements for your business before now, there is no better time than now to start.
Most importantly, your policy thrust should be to increase your revenue and decrease your business expenses.
4. Do proper planning
Poor planning could be responsible for the threat to the success of your business.
As Benjamin Franklin puts it “if you fail to plan, you are planning to fail”.
A business plan is like a road map; a document or handbook you can refer to from time to time.
Furthermore, your business plan should:
- set standards, benchmarks and point to the direction you want your business to go.
- be simple or detailed, depending on the needs of your business
- be tailored to meet the needs of your business
- state the aims and objectives of your small business.
If you do not have any, you can write one even if you have to write on an A4 paper!
Most importantly, you need to review and update your business plan from time to ensure that your business constantly remains on track and competitive.
5. Do more marketing
Not doing enough marketing is one of the major causes of small business failure.
For example, if low sales is the culprit, you need to consider doing more marketing.
However, if you have been marketing and things are still not working out, you should review your marketing strategies.
For example, you need to know more about:
- your customers
- their tastes, choices and preferences
- where they hang out
- best way to reach to them and sell to them
Additionally, you can do more marketing using:
- Face book
Furthermore, if you are operating on a low budget, advertising on local radio stations is your best bet. Ensure that your ads are properly targeted to likely customers.
Adverts on radio are not expensive. They are also very effective and reaches out to many areas. Radios are cheap. Many people can afford one.
Most importantly, you need to:
- re-evaluate your ability to sell yourself and your products,
- hire capable sales persons and marketers to help you drive sales
- keep your product prices at competitive levels.
6. Prevent business failure: Stop Credit Sales
You should not sell your merchandise on credit to customers.
Selling your goods on credit basis is a leading cause of business failure.
For example, some customers you sold to may not pay you.
Instead of paying you or coming to buy from you again, they will take their business to another vendor; thereby avoiding you. Reason: They do not want to pay.
Other disadvantages of selling on credit include:
- It will affect your cash flow
- you will end up having a pile of bad debts
- It will tie down your working capital
- You will not have money to replenish your stocks when they get low
Note that bad debts are normally written off to the Profits and Loss Accounts at the end of the year.
Consequently, bad debts reduce your profits.
Finally, if you have collectibles with customers, you should go and collect the cash.
7. Provide excellent Customer service
You need to be able to provide excellent customer service to your customers.
Excellent customer service can help you to:
- keep your existing customers
- attract new ones
- get referrals and recommendations
- boost your sales and profits
- help your business to grow.
Furthermore, remember that unsatisfied customers cannot give you referrals or recommend your business
Most importantly, you should apologize to customers when things go wrong at your end.
Customers like apologies. After all, apologies are free.
8. Keep Accurate Accounting books and records
You should keep proper accounting books and records of your business transactions.
In business, accuracy is the name of the game.
Accurate accounting books and records will enable you to:
- prepare annual financial statements for your business
- compare the performance of your business this year against the previous year.
- assess the performance of your business with other businesses in the industry.
- make better business decisions
- prevent frauds.
- monitor your assets and liabilities
Moreover, if you cannot personally write up the accounting books, you can:
- hire a bookkeeper
- outsource to an outsider to do for you.
Do not think that the little amount of money you will pay to a Bookkeeper or an Accountant to keep your accounting books is a waste of funds. Far from it.
In conclusion, you should remember that if you are operating a business without looking at the numbers, you are like a pilot trying to fly an airplane without a compass.
By Samuel Ijenhi
B. Sc. Accounting [University of Benin]
Benin City, Nigeria.