Running your own business can be very rewarding but success is not always guaranteed. Businesses are most vulnerable to failure during their early years of trading - statistics vary but one commonly quoted is that nine out of ten new businesses will fail within their first three years!
Running your own business requires you to be a jack-of-all-trades. Dealing with the marketing, sales and finance functions among many others whilst still trying to grow your business isn't easy.There are an endless number of traps to fall into which could sink a business. Here are five common pitfalls to look out for, along with advice on how to avoid them.
Set clear goals
Does your business have a clear mission, yearly goals and a long-term game plan? Having a business plan in place will help you to focus on these.
Ensure your goals are SMART. Your goals should be specific, measurable, achievable, results-focussed and time-bound. Review your goals regularly and set yourself new goals when appropriate. Most importantly communicate your mission and goals to your fellow co-workers and employees and ask them to contribute to this process. Don’t keep them in the dark. Their livelihood is tied to the success of your business too, so make sure they know what they need to do to keep your business healthy.
Remember: cash is king
It's worth remembering the old business saying “turnover is vanity, profit is sanity but cash is reality”. Cash crunches are generally what sink small businesses so learning to monitor that metric is critical. It's important to forecast your cash outflows and cash inflows for the next 12 months to ensure that you will have sufficient cash to run your business. Check the date of key outgoings (such as VAT and payments for rent and rates) to ensure that those are correct and test your forecasts with someone you trust. Always be prepared to re-adjust them when things don't go as you had planned.
Choose your partner carefully
Picking the right person to help you turn your business from an idea into a success is as important as choosing a life partner. It's all too easy to go into business with someone you know well - you get together, think of any idea and decide to get started but it can so easily end in tears. So before you get started think carefully about the good, the bad and the ugly of being in business with a particular family member or friend.
Put in place an agreement which sets out the rights and obligations of each partner in the business. All parties should be clear from the outset as to where they stand. The agreement should also deal with what happens when things go wrong, for example, does one partner have the ability to buy the other out (which may favour the wealthier partner) and continue to run the business or should the business simply be wound up (which could result in the destruction of a successful business).
Know your market
Knowing your market and accurately assessing the potential demand for a product or service is the key to an idea becoming a success or a failure. You should take time to understand who your competitors are and identify what differentiates you from them. For example, can you offer a better service or can you compete on price. It all boils down to understanding why customers would rather buy from you rather than your competitors.
Get professional advice when you need it
In a company's infancy, it is all too easy to skimp on professional fees by dealing with issues that you shouldn't be doing yourself. It's better to spend your time focussing on running and growing your business rather than re-inventing yourself as an accountant, lawyer or other professional advisor.
The key is knowing when to call upon the professional advisor and most advisors will tell you when you are asking them to do something for which they are adding no real value or which you would be better of dealing with yourself.
Speak to friends and family members who have used advisors in the past to give you recommendations. You might even have one in your friends circle or within the family who would be willing to give you some free advice!
This article originally appeared in The Guardian, click here to view it.