This article shows you the 9 Best And Most Effective Ways To Prevent business failure.
- Review your business idea.
- Review your business location
- Review your startup capital
- Reduce business expenses
- Do proper planning
- 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.
Review 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
- review and upgrade your customer service
- review your pricing strategies
- check the 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 already in the rut of insufficient capital, you should try the following options:
- Ask your family, friends and associates for interest for short-term loans.
- You will be better off if you can get non-interest bearing loans
- You can collaborate with co-operative societies that support your type of business
- You should check out for some government agencies that support small and medium scale enterprises.
- Prepare cash budgets and cash flow statements.
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.
Reduce Business Expenses
You can prevent business failure if you put in place measures to track your business expenses.
Furthermore, you should try to identify:
- expenses that the business needs to operate successfully
- expenses that can be reduced
- expenses that 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, 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 reasonable 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 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:
- your customers
- their tastes, choices and preferences
- their buying habits
- where they hang out
- best way to reach and sell to them
- upgrade your offerings.
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
- advertise on television if you can afford it
- 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 very effective in driving sales because they cover wider areas.
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.
The following are some of the benefits of providing excellent customer service:
- it will help you to keep your existing customers
- attract new ones
- get referrals and recommendations
- boost your sales and profits
- make your business to grow.
Remember that unsatisfied customers cannot give you referrals or recommend your business
Apologize to customers when things go wrong at your end.
Customers like apologies. After all, apologies are free.
Keep Accurate Accounting Records
To prevent business failure, you need to keep proper accounting records of your business transactions.
For example, if you do not keep accurate records of your financial transactions, you can loose money to smart guys.
Similarly, if you do not keep accurate records of your stocks, your employees can help themselves with your stocks.
Keeping good accounting books and records will benefit your business in the following ways:
- You will be able to prepare annual financial statements for your business
- You will have a basis to compare the performance of your business this year against the previous year.
- In addition, you will be able to compare the performance of your business with other businesses in the same industry.
- It will help you to make better business decisions
- Records keeping will enable you to monitor your assets and liabilities.
Therefore, if you cannot do it yourself, then you should consider hiring a bookkeeper or an accountant to write up the books for you.
You could hire one on part-time basis or you can outsource the job 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 track your records is a waste of funds. Far from it.
Remember that it takes money to make money.
In conclusion, you should remember that if you are operating a business without monitoring your performances, you are like a pilot trying to fly an airplane without a compass.
By Samuel Ijenhi