There Are 17 Most 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 effects of 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 good business can make your business succeed
A wrong business idea can make your business to fail.
You can find business ideas from books, magazines and online or during interactions with people.
For example, your choice of business idea must be based on your skills, interest, training and experience.
Experience has shown that you are most likely to succeed in a business where you have great experience and expertise.
Therefore you need to confirm whether your business was founded on a viable business idea.
Most importantly, where the problem becomes too difficult for you to solve, 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 business from failing: Verify your business location
You need to re-validate the set of assumptions upon which you chose the present location for your business.
For example, it is possible that the assumptions on which you chose the location have changed.
If that is the case, you need to find out what has changed and fix it.
Moreover, you need to find out why customers are not coming to your business as before.
Could it be that the environment where you do business has changed and that is affecting foot traffic to your business?
Most importantly, after reviewing your business location and you find that it is not sustainable, you are better off relocating to a better place.
Good business location is crucial to the success of any business.
Good business location is one of the keys to success in business.
Absence of amenities and security
Lack of essential amenities can stand can make your business to fail.
For example, if you have to buy gasoline on daily basis to power your business due to poor power supply, this expense can suck your profits.
As a way out, if you can afford to install a solar energy to power essential services in your business, you can do so.
Secondly, if your business is located in an area where your warehouse or shop is periodically attacked by criminals, this can scare away your existing customers.
Plus, you will not be able to get new customers.
However, the various threats to your business, you can choose whether to remain where you are or relocate to better place.
Review your startup capital
Inadequate startup capital is one of the commonest causes of business failure.
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
- 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
- Your business cannot grow.
However, where your startup capital is adequate, you need to do more by looking inward to identify what went wrong or where you missed it.
For example, you need to look at many factors such as:
- Poor financial management,
- Improper inventory control,
- Leadership failure
- Lack of or Improper planning
- Inadequate marketing
- Poor customer service
- And lots more.
Inadequate startup capital
Inadequate startup capital can make your business fail.
If your startup capital is inadequate, you can take the following steps:
- Look for interest-free loans from family and friends
- Join cooperative societies where you can buy things at good prices
- Negotiate with suppliers to give you some time to pay for supplies.
- Sell off assets your business has not used in the last six months
- Look for Government agencies that support small and medium scale enterprises.
As a last resort, you can consider borrowing money from your bank.
Remember that bank approves loan for you, you will need to pay back both the principal and the interest on the credit.
Furthermore, you should borrow money for the right reasons.
Use the money for the purpose for which you borrowed it.
Do not go about marrying additional wives or buying expensive cars to let people know that you have made it.
Most importantly, you should borrow money that your business can pay back seamlessly.
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:
- 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.
Consequently, 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 and fixed costs can negatively impact 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.
Also read: Ways To Reduce Your Business Expenses
Update your business plan
Poor planning or lack of it can threaten the survival of your business.
According to Benjamin Franklin “if you fail to plan, you are planning to fail”.
Consequently, if you have existing plans that you think are not working, you can review them.
Your business plan need not be detailed, but you can 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 always refer to from time to time.
Furthermore, your business plan can:
- State the aims and objectives of your business objectives
- Point to the direction you want your business to go.
- Must be written to meet the needs of your business
- Even contain marketing and financial projections of your business
Most importantly, you need to review and update your business plans from time to ensure that your business is tracking changes in your industry.
Provide effective leadership
Behind every successful business is effective and purpose driven leadership.
The success or failure of your business depends on the quality of your leadership style.
For example, if your employees know that you are strict and pay attention to details, they will be afraid to misbehave.
Moreover, you should remember that you are on the driver’s seat.
Consequently, it is the standards that you set up that your employees will follow.
Effective cash management
You need to put in place a crafted cash control system that allows you to track all your business revenues and expenses.
For example, you need to create a cash budget that you can use to an effective management of your cash.
Furthermore, you need to create a cash flow statement that can show how and when should leave your business.
Similarly, your cash flow should show how and when cash should leave your business.
In any case, you should ensure that you get value for every single Dollar that leaves your business.
Reduce incidence of bad debts
Bad debts are by-product of credit sales.
Moreover, bad debts are money that you not sure that you can collect from your customers.
At the end of the year, any debts that you are reasonably sure that you cannot collect will be written off to the profit and loss of your business.
Put differently, bad debtors reduce your profits.
Therefore, you need to go through your debtors accounts periodically and flag accounts that are most likely going to be impossible for you to collect.
Then the, they can be written off to the profit and loss. account.
You should reduce your propensity to borrow money from the bank.
That you are well connected with a bank manager that can always ready to grant you credit facility, is not an excuse for you to begin to borrow money from your bank indiscriminately.
Remember also that if you have large sums of money with customers, this can impact your ability to meet your obligations as they fall due.
If you borrow money to run your business because your cash is with debtors, it means that you are borrowing to fund your debtors.
Most importantly, you should remember that if you borrow, you will need to pay back the principal and the interest charges.
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:
- linked In,
- Face book
Prevent Your Business From Failing: advertise on radio
Furthermore, if you are operating on a low budget, advertising on local radio stations is your best bet.
Adverts on radio are:
- Not expensive.
- Affordable by many people
- Capable of reaching out to listeners in many remote areas.
- They are portable and powered by batteries.
Your pricing structure can make all the difference between success or failure in your business.
So 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 when they are supposed to.
This affects your cash flow and inability to meet your obligations..
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 that you may not be able to collect
- 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 are written off to the profit and loss account.
The effect is that bad debts reduce profits.
Finally, if you have collectibles with customers, you should go and collect the cash from them.
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
Founder: Ijenhi Business Solutions.