There are common mistakes made by all companies and, whilst
they can leave a nasty dent in a large corporation, they
can totally ruin a small business. These are the five
biggest mistakes commonly made by companies of all sizes
and what you can do to avoid them.
1. Not managing cash
This is the single greatest cause of business failure and
it's what keeps most entrepreneurs awake at night (and if
it doesn't, it should!)
Your cashflow is an absolutely essential part of your
business. If you have too much going out or not enough
coming in, then you're heading for trouble. It may sound
obvious but it's still the most common failing of companies
of all sizes.
The challenge for any growing business is that there is
usually a gap between what you pay to your suppliers and
employees and what you get back in from your customers.
Most business owners are painfully aware of this when they
start their business and sales are few and costs relatively
high. However, as sales begin to grow, it's easy to take
your eye off the ball and forget this gap. And whilst your
sales are growing your costs are also increasing and your
ability to switch off those costs at short notice becomes
more and more difficult. And then you meet a slowdown in
your sales or your customer payments and all of a sudden
your bank balance tips further into the red than it's ever
done before. And your business can go from boom to bust
almost overnight.
The only way to avoid this is to keep strict control over
your cash and monitor it passionately. If you have a CFO
or FD, even part-time, they can help you here. Never lose
sight of the importance of collecting your debts as soon as
possible and always keep a careful eye on what's going out,
what's coming in and what you're committed to. And make
sure you have a system for forecasting your future cash
position, especially if you're growing fast.
And if you don't know how to do it, find someone who does,
quickly.
2. Poor marketing
Unfortunately it's not always the best products that win
through in business. There are many great inventions that
have fallen by the wayside because they simply weren't
marketed well enough. And usually it's because there was a
competitor out there doing a better job of the marketing,
even if they didn't have a better product.
Marketing is about how you communicate what you do to your
potential customers. And it's about evoking the right
emotional responses in those potential customers. If
you're out there pushing the great features your product
has, you'll nearly always lose out to the competitor who
tells the market what the product will do for them and how
it will make them feel.
Of course, if you don't do any marketing then nobody will
know you exist. And if you jump straight into great big,
expensive, scattergun campaigns, then you'll just be
pouring cash down the drain.
To succeed you need to concentrate on focused, targeted,
emotional, benefits driven marketing and PR, then you'll
find the whole selling process will come so much easier.
And that means your business will grow. And how will that
feel?
3. Hiring the wrong people
Hiring the wrong person can be one of the most costly
mistakes you make. It might be a sales person who can't
sell, an accountant who can't add up, or a senior manager
who tries to steal your job and take over the company.
When you think about the costs of hiring there's a lot to
consider. You've got the recruitment fees; the time and
effort you put into the recruitment process; the employee's
salary and benefits; the tax, training, equipment and
office costs that you have to cover and the development and
training time. And then, if you realise you have to get
rid of them because they're not working out, there can be
more time spent going through the process of removing them,
the cost of notice periods, additional benefits and often
some form of payoff so that they won't sue you.
And then you have to start all over again, hiring someone
new, having wasted a huge amount of time, effort, energy
and money.
Get your hiring process in tip top condition and spend as
much time as it takes to get the right person. Don't
settle for the best of a bad bunch and don't just pick
someone and hope they work out. Know exactly what you're
looking for and design ways to test the candidates to
ensure you get the right people. If it takes a day of
testing, then do it, rather than commit a huge chunk of
your resources based on a couple of brief chats that pass
for interviews.
Check references, research the candidates on the internet,
check their previous employers and look for ways to verify
what they say. If should come as no surprise that not
everyone is completely honest in their job applications.
4. Losing control
There are many ways that a business owner can lose control
of their business. Sometimes it's over-delegation of
essentials like payments to suppliers. Sometimes it's
over-reliance on a management team that have a different
agenda in mind. Sometimes it comes through raising finance
and giving away too much of the company to investors.
As a business owner, it's rare that you'll find someone
else who will care as much about your business, customers,
staff and investors as you do. It's a great idea to bring
in a management team to run your business for you but don't
be surprised if they have their own agendas and career
aspirations, which may not always include you.
You can't do everything, and there comes a point when you
have to trust other people. The key is to make sure they
know what you expect from them and to ensure you've got a
way of monitoring what they are doing.
Control is invariably about information and the ability to
make decisions. When you have good information you can see
what is really happening and then you can take the right
decisions. This can be information about what's being
spent and what's being sold. And on what terms. It can be
information about any significant agreement, deal or
commitment that the company is entering into. Create great
management information systems that really tell you what's
going on in the business.
Always be careful of anyone who seeks to put themselves in
a position of control over your business. That includes
staff, investors, other directors, suppliers, customers and
banks. Think about what you're giving away in any
agreement and look for ways to protect yourself and stay in
control if you want to protect the value in your company.
The moment someone else can make decisions about your
business then you've lost control.
5. Forgetting about the customer
Lastly, one of the most common mistakes made as a business
grows larger is forgetting about the very customers that
supported the company's growth in the first place.
When you start in business you tend to stay close to your
customers. You're building a reputation and making sure you
deliver first class service. You'll often be on first name
terms with many of them and know exactly what you've sold
to them.
As you grow, the gap between you as the business owner and
the customers can grow larger and larger. And as it does,
they can stop meaning so much to you because you start to
see them as just names and numbers on a report rather than
people you're providing a service to.
And as that disconnection grows, it can be easy to forget
what it was that brought the customers to you in the first
place. The personal touches that made you stand out from
your competitors. And after a while your company becomes
just another commodity provider and your customers start to
drift away to the competition.
Stay connected.
Always remember who put your business where it is today.
It's your customers and clients who pay your bills, your
salary and who provide the value in your business. If you
come to sell your business, it's going to be your customers
(current and future) who are going to be supporting the
value of your company.
Keep in touch with your customers. Get out and see them.
Talk to them and listen. You'll discover a whole lot more
about your business and you'll make your company stand out
from the crowd. Keep your promises and always deliver the
best possible service you can and you'll build a loyal
customer base that will stay with you.
Of course there are many more mistakes that can be made but
if you can avoid these 5 then you've got far more chance of
your business surviving and thriving.
----------------------------------------------------
Andy Warren is the Managing Director of Marshall Keen Ltd.
He is a chartered accountant and successful CFO, FD and
entrepreneur with extensive experience in M&A, Corporate
Finance, Business Growth and Exit Strategies. Marshall
Keen http://www.marshallkeen.com specialises in providing
flexible CFO services and part time FDs to early and mid
stage businesses, particularly in the tech sector.
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