10 Effective Ways To Prevent Your Business From Failing

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There Are 10 Effective Ways To Prevent Your Business From Failing.

Researchers have estimated that, at least, one out of every 5 new businesses fail before their 5th year of existence.

The pains associated with business failure is better imagined than experienced.

However, below are some actionable steps you can take to prevent your business from failing.

Review your business idea

Every business begins with an idea. A 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 business failure, you need to make sure that you are in a business in which you have great passion.

You and I know that you can only excel in any activity where you have great passion.

Beyond that, you need to be convinced in your mind that you founded the business on a viable business idea.

However, if you find yourself in a business that do not match your interests or abilities you are better off looking for another business to invest your money.

But if the business idea was right, it means you need to look inward by going back to your drawing board to find out what went wrong.

It is even possible that you have been part of the problems rather than the solution.

In any case, where the problem becomes overwhelming for you, you should not be shy to approach your mentor for advice.

Alternatively, you can take the problem to a management consultant who can help you to fix it.

Prevent your business from failing: Verify your business location

You need to revisit the metrics you used to confirm whether the present location of your business was suitable for your type of business.

For example, if the location is okay, it means that you have to make a deeper analysis of your business processes to identify areas that holding your business down.

Moving forward, in particular, you need to look critically into the ease of doing business with you.

For example, you need to find out if you are still using analogue systems to run your business instead of digital.

Clearly, if customers do not enjoy doing business with you, this can have negative impacts on your business.

Customers will begin to exit. Profits will begin to decrease. Your business cannot grow.

Absence of amenities

Lack of essential amenities can stand in the way of your business success.

For example, if you have to buy gasoline to power your business due to poor power supply, these expenses can suck your profits.

Secondly, if your business is located in an area where your warehouse or shop is periodically looted by criminals, this can hurt your business.

However, after analyzing your businesses processes and systems you still cannot come out of the woods, then you can relocate to another place.

Good business location is crucial to the success of any business. Good business location is everything. Yours should not be an exception.

Review your startup capital

You will need to find out if your business startup capital was adequate for the type of business you are doing

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 attract new customers

Therefore, if the startup capital is inadequate, you can source for funds from the following sources:

  • Interest free loans from family and friends
  • Join cooperative society

Get financial assistance from government agencies that support small and medium scale enterprises.

However, you should not borrow money from bank to do business, especially if your business has no track records of impressive performance.

Even when the bank agrees to grant you credit, their interest rates are too high. And high interest rates can hurt your business before you know it.

Prevent business from failing: Reduce Business Expenses

You can prevent small business failure by curtailing your business expenses.

To enable you do this, you need to clearly identify expense items that:

  • That the business can do without
  • Are necessary but need to be monitored and controlled

The best place to identify the offending 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.

High operating expenses can negatively retard the growth of your business. It can even lead to business shut down.

Most importantly, your strategy should be to increase your revenue and decrease your business expenses.

Do proper planning

Poor planning or lack of it can threaten the survival of your business.

It is a well- known fact that poor planning can produce poor results.

According to Benjamin Franklin “if you fail to plan, you are planning to fail”.

Consequently, you need to have a well thought out business plan.

Your business plan need not be detailed, but put something down even if it is on an A4 paper.

A business plan is like a road map; a document or handbook you and your team can refer to from time to time.

Furthermore, your business plan can:

  • Set should state the aims and objectives of your business objectives
  • Point to the direction you want your business to go.
  • Be simple or detailed, depending on the needs of your business
  • Even contain marketing and financial projections of your business

Most importantly, you need to review and update your business plan from time to ensure that your business constantly remains on track and competitive.

prevent your business from failing: Do more marketing

Not doing enough marketing is one of the major causes of small business failure.

For example, if low sales are the culprit, you need to consider doing more marketing, trying and making changes here and there.

However, if you have been marketing and things are still not working out, you can consult marketing experts to help you chart the way forward.

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
  • Things you need to do differently to stand out from the crowd

Additionally, you can do more marketing using:

 

  • Twitter,
  • linked In,
  • Pinterest,
  • Instagram
  • Face book

Furthermore, if you are operating on a low budget, advertising on local radio stations is your best bet.

Adverts on radio are:

  • Not expensive.
  • Effective
  • Capable of reaching out to listeners in many remote areas.

Radios are cheap. Many people can afford to buy a radio. They are portable and powered by batteries.

Furthermore, you need to set the selling prices of your products at competitive levels.

Remember that if you price too high, you will scare away your customers. Conversely, if you price your products too low, customers will think that your products are inferior.

You even risk running your business at a loss.

Prevent business from failing: Stop Credit Sales

You should not sell your products to customers on credit basis.

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 goods on credit include:

  • It can affect your cash flow
  • You can end up having a pile of bad debts
  • It will tie down your working capital
  • You will not have cash in hand 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.

The consequence of bad debts is that they reduce your profits. Think of it. Any debt you cannot collect or are not sure that you can collect is a loss to the business.

Finally, if you have collectibles with customers, you should go and collect the cash from them.

Related: 10 Ways Poor Financial Management Can Hurt Your Business

Provide excellent Customer service

Without providing exceptional customer services, your customers will leave you.

And without customers, your business will be worthless. And your business will be empty.

Moreover,  you need to remember that you need customers more than they need you.

Excellent customer service can help you to:

  • Keep your existing customers
  • Attract new ones
  • Get referrals and recommendations
  • Boost your sales and profits
  • Enable your business to grow.

Furthermore, remember that unsatisfied customers cannot give you referrals or recommend your business to their family and friends.

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 and records

If you do not keep accurate records of your business transactions, you will not know the direction your business is going.

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 or an accountant
  • 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.

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

Founder: Ijenhi Business Solutions.

info@samuelijenhi.com.ng

 

 

About Samuel Ijenhi

A graduate in Accounting, University of Benin, Benin City, Edo State, Nigeria.
View all posts by Samuel Ijenhi →