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Previously published at the RiskBuster blog on October 3, 2011, here is the fourth and final part of the series, featuring four business killers.
Cash Flow Crunch. Cash is the lifeblood of a business. If you’ve ever tried to operate without it, you’ll know it’s not a lot of fun. The cash flow shortfall starts off quietly but doesn’t stay silent for long. It first raises its ugly head in the form of sluggishness in paying small bills, late filing of taxes, or delaying needed repairs and maintenance. More sinister indicators are failing to make payroll, falling behind on lease payments, or having equipment repossessed. Cash flow shortfall always makes the business owner busier, his time and energy devoted to dealing with angry stakeholders and humourless collectors. The final stages of cash starvation involve the joys of having major creditors and tax authorities lock up your bank account and being hogtied to the point that you can no longer serve customers. The keys to navigating a shortage of cash are: to maintain open communications with creditors, only make promises you can keep, and then keep those promises.
Fingers in Too Many Pies. Once an entrepreneur makes a success of one business, there’s a dangerous tendency to think he can duplicate his efforts in another business, and then another, and another. Spreading resources over a number of ventures can weaken an entrepreneur’s ability to deal with financial difficulties. Aside from stretching finances, getting pulled in too many directions can deplete an owner’s time and energy, making it difficult to maintain the core business that brought about the initial success. The key to avoiding this pitfall is to know your abilities and be sure to keep enough energy, cash and focus to maintain your core business.
Trying To Be All Things To All People. In the flurry of serving customers it’s easy to lose your focus and latch onto whatever work comes along. In the early days of a small business there’s a tendency to follow the money. This means jumping on opportunities that arise when customers request products or services that aren’t part of the current offering. There may be nothing wrong with accepting the odd crumpet as long as you have time and the customer is satisfied. Too often it seems that trying to be all things to all people, as a way of doing business, tends to hold a venture back rather than advancing its mission. The key to staying on target is to identify what you want to be best at, then focus on providing that core service and refer all other business to trusted colleagues.
Knowing When To Fold ‘Em. Not all enterprises are going to be successful. In reviewing case studies of failed businesses, it easy to see that the owner should have closed the doors sooner. Yet, when you’re buried in a bad situation, it’s more difficult to know exactly when to pull the plug. It’s important to learn when to walk away from a product, a service or a business.
Building a business is like growing a garden. You begin with a vision for success, nurture the parts you want to succeed, and weed out everything else. In business, cash flow and net profit are two critical measures of performance, but there are others as well—your quality of life, working at something you love, and the impact the business has on your family.
No matter how well-intentioned your business idea, things can go horribly wrong. When I vaulted into my first business in 1980, I hoped to be a successful, positive force for those around me, and an asset to my community. Seven years later, the day I declared bankruptcy, I felt crushed, enslaved, and worthless. Not the glory I’d envisioned.
So, you’ve gone to all the effort to get your venture off the ground and survived the start-up phase. Aside from the fact that you’re too busy to socialize much, or take holidays, your business appears to be thriving. In your circle of friends you might even be a bit of a hero.
Congratulations might be in order. In starting a business, you’ve achieved something that many people dream about but never do. But are things as rosy as they seem?