Many small business owners must start their businesses because they are forced to. They might have been fired, retrenched, or could not find work.
This means many small business owners need more time or resources to learn basic business practices like finance, marketing, and human resource management.
Another danger is that small business owners work hard to grow their businesses, pushing for sales, managing negotiations with suppliers, making monthly payrolls, and getting large customers to pay on time. They only notice major problems once they threaten their business’s survival.
Recent newspaper reports indicated that approximately 4,000 businesses were insolvent in 2013. Although the causes of these failures have not been reported, it is easy to see the common fatal errors: poor business decisions, cash shortages, market volatility, or employees who embezzle company funds.
Here are 10 tips to help small business owners.
1. Keep within your “circle” of competence: Warren Buffett, an investor, avoids investing outside his “circle.” Entrepreneurship is a skill that requires a different level of competence than the small business owner. In difficult times, keep knitting.
2. Cash flow is the most important thing. It is important to monitor cash flow frequently in difficult economic times. You can set up a simple system to monitor your cash flow and keep an eye on it like a hawk. Suppliers want their money immediately, while big customers will wait forever to pay. It is, therefore, important to manage cash carefully.
3. Signing sureties is not a good idea. When cash runs out, it’s tempting to visit the bank to increase your overdraft. Signing sureties for small loans that require confiscating your assets and business is not a good idea. That’s enough.
4. Avoid temptation: Be ethical at all costs: Even the most innocent of business practices can become a problem if they are not honest. You must have a clear line of demarcation that you won’t cross. Small businesses that are unethical and exploitative are increasing in this economy. Avoid them as soon as possible. They are operating illegally, not paying taxes, and not adhering to health regulations. The appropriate authorities should stop these people.
5. Make time for your business. Working in your company leaves you with little time to spend on your business. Each week, take the time to evaluate where your business is and look for ways to improve your operations or increase your market share.
6. Insurance coverage: Ensure you have insurance for theft, fire, and personal liability. This sounds simple, but how many small-business owners have enough insurance? This doesn’t mean you have to be bankrupt.
Business advice is the biggest risk a business faces. Bad business decisions can lead to financial ruin for utilities and airlines. They need to be saved. Do not trust business advice. Instead, rely on common sense and your cunning.
8. Avoid dangerous number 1. There is danger in having only one customer or one supplier. Make backup plans and check your business for this type of risk.
9. Be on the lookout for unusual behavior in your employees. They could be handling too many important tasks. Employees could be taking stock without you being aware. Finance or bookkeeping staff could also be involved in invoicing fraud. Be suspicious of unusual behavior.
10. Save money and avoid buying unnecessary assets. Your small business should set a target for cost reduction and follow it.
These 10 tips are essential for small business’ survival in these difficult economic times.
Before it’s too late, consult a professional or business advisor if you have concerns about hidden or unobserved risks to your business.
Although you may feel obligated to pay them a fee, it is a small amount compared with the cost of closing your doors.