This article shows you the 9 Best And Most Effective Ways To Prevent business failure.
- Review your business idea.
- Verify your business location
- Review your startup capital
- Track and reduce business expenses
- Make sound plans
- Do more marketing
- Stop Credit Sales
- Provide excellent Customer service
- Keep accurate accounting books
The rising rate of small business failure is now a source of worry for many entrepreneurs.
In this part of the world, small business failure cuts across businesses in all sectors of the economy.
For example, it has been reported that nearly one out of every five new businesses fail before it’s 5th year of startup.
This article is, therefore, looking at the most common causes of small business failures.
You can, therefore, use the following strategies to prevent business failure.
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 sort out the issues involved.
Verify your business location
Wrong location of business can lead to 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 following amenities were available before you located your business:
- 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 consider relocating to a better place to prevent your small business failure.
On the other hand, if the above amenities are available and your business is still struggling, then it is time for you to go back to the drawing board:
- To find out what went wrong
- Find out if there are things you have been doing wrongly
- Whether you are giving customers what they need
- upgrade your customer service
- review your pricing strategies
- ensure ease of doing business with you
- check personal lapses on your part
- find out if your business expenses are too high
- take a hard look at the quality of your employees
- pencil down those that need to be sent away
- identify those that need to be retrained
- ensure that you have provided everything your employees needed to do their jobs.
- And whether you are motivating your employees.
Good business location is crucial to the success of your business.
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 without enough capital, you are likely to have the following problems:
- Inability to meet customers’ needs
- You will not be able to compete in the marketplace.
- You will be unable to carry adequate stocks
- Suppliers will be unwilling to sell to you if you don’t pay cash
- You will not be able to keep your promises
However, if you are still facing the problem of insufficient capital, you should try the following options:
- Ask your family, friends and associates for interest for short-term loans.
- Prepare cash budgets and cash flow statements.
- Look for interest free loans from family and friends
- You can collaborate with co-operative societies that support your type of business
- Get financial financial assistance from government agencies that support small and medium scale enterprises.
However, you should not borrow money from bank to do business.
They charge very high interest rates. And high interest rates will hurt your business before you know it.
Business failure: Reduce Business Expenses
You can prevent business failure if you put in place appropriate measures to track your business expenses.
Furthermore, you should try to identify expenses that:
- the business needs to operate successfully
- can be reduced
- should 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, you can prevent your small business failure by ensuring that your business expenses are kept at sustable levels.
Do proper planning
Poor planning is another cause of small business failure.
To help you prevent small business failure, you should ensure that you have a business plan.
A business plan is like a road map; a document or handbook you can refer to from time to time.
Your business plan can be simple or detailed. The important thing is that your business plan should be tailored to meet the needs of your business.
Your business plan should set standards, benchmarks and point to the direction you want your business to go.
Furthermore, it should state the aims and objectives of your small business.
Most importantly, you need to review and update your business plan from time to ensure that your business remains on track and competitive.
Do more marketing
Not doing enough marketing is one of the major causes of small business failure.
To help you prevent business failure, you need to do 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 and sell to them
- their buying habits
After taking the above steps, you should try to check any lapses in your marketing campaigns.
Your marketing campaigns should be able to meet the needs of your customers.
Additionally, you can do more marketing using:
- advertising on radio and television
- ensure that your prices are neither too high nor too low.
If you are operating on a low budget, advertising on local radio stations is your best bet.
Adverts on radio are not expensive. They are also very effective and cover wider areas.
Business failure: Stop Credit Sales
You can prevent small business failure by stopping credit sales 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 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 then 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 your money tied down in the hands of your customers, it is time for you to go after them.
Provide excellent Customer service
You need to be able to provide excellent customer service to prevent business failure.
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.
Keep Accurate Accounting books
To prevent business failure, you need to keep proper accounting records of your business transactions.
Accurate accounting books 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 Store Keeper, 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.