Question: I'm a new small business, and I really want to succeed. But I lack experience in business and management. I'm afraid I'll blunder and fail. Can you help?
Answer: Here are 10 mistakes that small business operators commonly make. If you see one coming, you may avoid falling into the trap. Let's talk about this.
A dangerous situation is: when you don't know what you don't know. This sounds silly, but it's serious. You need to recognize that there are many things that could cause your business to fail, and you may not even be aware of them.
And realize that, as someone once said: experience is a hard teacher - she gives the test first, and then the lesson afterward. Let's look into some typical small business mistakes.
Ignoring your business plan. Perhaps you wrote a business plan primarily to get a bank loan. Even so, parts of it, for example your mission statement, marketing plan and financial projections, should be near and dear to you in your early years. These, and any other "metrics" you have chosen to track your business' progress, will warn you if you're going off course.
Failing to focus on value creation. It's easy to fall into thinking that the purpose of a business is to make money. Put simply, the purpose of a business is to take "inputs" (physical items, ideas, your education and skills) and use them to make a product or service that people want and will pay for. While it's possible to make money in the short run without creating much value, it's unsustainable. Think of your business as a "value-adding system." The better you understand what value you're trying to provide, the better you'll be able to focus on it.
Under-capitalization. Starting a business on a shoestring has a nice American Dream feel to it, but it's usually not realistic. A business needs enough initial funding (from the owner's equity, plus borrowed money) to meet all initial needs. Be sure to include startup costs; occupancy and operating expenses; other working capital uses; and an ample cushion until internal cash flow meets all needs.
Heavy dependence on just one of anything. If any aspect of your business depends heavily on one supplier, or customer, or person, or apparatus, then you're in the danger zone. You need to have a backup plan to deal with that. Simple example: You could cross-train employees so one could fill in for another if needed.
Poor recordkeeping. Many small businesspeople are not good administrators; they feel more comfortable getting out there and "doing business." Paperwork is easy to postpone, but it can't be put off indefinitely. The worst consequence of sloppy recordkeeping is getting into trouble with the various taxing agencies and departments for not paying timely. If recordkeeping isn't your forte, get help. Whatcom County has dozens of companies that offer bookkeeping and payroll services, at modest cost.
Weak cash management skills. Cash is the oxygen of your business. If you're chronically out of cash, pretty soon you're out of business. Be sure you know the fundamentals of cash flow management.
Unfocused marketing direction. You need to define and focus your marketing to your specific target markets, not just to the general public. Also essential is an excellent website and a social media presence.
Not seeking outside advice. A business owner may be an expert in a chosen field, but a small business needs technical help from legal, accounting, tax, insurance and other professionals. For less technical issues, an excellent way to address this is to form an advisory board. Also, consider talking with a SCORE counselor; it's free and confidential.
Poor collections management. Many service (and some other) businesses fail because they are not good at collecting their accounts receivable. Nobody likes calling people and begging them to send a payment. However, the squeaky wheel gets the grease, and if you can't squeak, you're in trouble. Realize that the company or person that owes you might fail or go bankrupt, in which case you may get little or nothing. If appropriate, consider asking the client for progress payments as the job goes along.
Ignoring a sales decline. It's easy to think, "Maybe next month will be better." But the ostrich posture won't make that happen. If you sense that the decrease is a trend, act fast. Trim back on expenses and rerun whatever recent advertising you think was most effective.
Business is fun and rewarding, but there are hazards en route. Best that you know where they are.
ABOUT SCORE
To learn more about managing cash flow, and other small business matters, contact SCORE, "Counselors to America's Small Business." SCORE is a nonprofit nationwide organization with more than 13,000 volunteer business counselors who provide free, confidential business counseling and low-cost training workshops to small business owners. Call the local SCORE chapter at 360-685-4259 to schedule an appointment. For details about the organization,visit SCORE.org.
