How to prevent small business failure

Hehe....Running a small business is very exciting for passionate entrepreneurs and can lead to financial freedom. However, simple mistakes at the early stage can lead to failure.

Business consultants note that when business managers take proactive steps to control and seek advice, they will be immune to the possible downturns of the economy and will be more likely to survive and grow.

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Statistics show that eight out of 10 entrepreneurs who start a business fail within the first 18 months. This is corroborated by the rate at which small businesses collapse in Nigeria few years after their establishment.

A research by Basil 2005 indicates that most Small and Medium Enterprises, particularly in Nigeria, die within their first five years of existence; another smaller percentage go into extinction between the sixth and 10th year, while only about five per cent to 10 per cent of young companies survive, thrive and grow to maturity.

Entrepreneurs often complain that the major challenge they encounter is raising capital.

However, experts have highlighted key factors that often weigh down businesses and possibly sink them if not addressed.

Insufficient marketing

Experts observe that some entrepreneurs with brilliant ideas often abandon marketing at the early stage of start-up but concentrate on managing its operations.

On the other hand, some only implement marketing strategies at the early stage of their business and after one or two years, abandon it.

However, the Managing Director, Maxim Business Services, Mrs. Adeola Olaniyi, says marketing is an essential input for business success and should be continuous.

According her, the market changes and the needs of the consumers also change; as a result, today’s customer may not return tomorrow.

She says, “Set aside few hours of the day to market. There are many marketing strategies that can be used and the Internet has proven to be a viable platform. There will be no progress unless new clients are gained on a daily basis. The market is dynamic and so it is possible for some clients to leave. It is important for you to bring them back and win the heart of others.

“You should never be too busy to market. Free marketing may not be sustainable so don’t rely on it solely. Have a budget for low cost marketing strategies that have wider reach.”

Multiple investments

Investing in three to four businesses at the same time will hinder their growth and make them crash if not sustained, experts say.

They note that when entrepreneurs try to do more than one thing at a time, they may eventually not achieve excellence in any.

Olaniyi observes that when multiple businesses are pursued at the same time, it will drain the source of capital uncontrollably, no matter how robust it may be.

According to her, most entrepreneurs that make moves to expand their business immediately they break even are taking wrong steps.

She cautions against this saying that the business need to be strengthened with the right processes and strategies that will make them sustainable.

She adds that slow and steady growth is more sustainable.

“Many businesses require large and huge investments in equipment and these tools take time to pay off. One bad month without funds can put you hopelessly behind with no chance of recovery,” she says.

Not introducing new strategies

Entrepreneurs should be able to rapidly align their business with changing trends in order to have a competitive advantage over others, Olaniyi says.

“Be swift to carry your business along with the current or upcoming industrial trend and innovation. Taking advantage of every available trend can help your business stay on track and make huge progress,” she notes.

Funding an unprofitable venture

Olaniyi says all business ideas are good but not all are profitable.

She says entrepreneurs who are eager to make money fail to strategise and think about every step of an enterprise before putting all their resources into it.

She emphasises the need to write out a well thought-out business plan that gives the skeletal picture of what the enterprise aims to achieve, how it intends to achieve them and the resources that will be required. She adds that most business proposals are not bankable because they fail to answer crucial questions.

Olaniyi adds, “It’s important to choose an industry where you can achieve sustained growth. Having a positive cash flow is very important. It takes more than a good idea and passion to stay in business.”

Lack of legal backing

Professionals say a business can be formed as a sole proprietorship, a partnership or a limited liability company. While the sole proprietor and the partners are not usually separated from their businesses, the owners of a limited liability company are different from their companies.

Basically, a company is a legal entity separate from the shareholders or managers and its affairs must be separated from the owners’ personal affairs.

According to the Faculty Director, Soar and Heritage, Mr. Sola Adeyiga, this includes the bank accounts and other assets and liabilities of the company.

“Unfortunately in Nigeria, most small business owners don’t separate their companies from themselves. They are the chairmen or chief executive officers and thus, have the right to take cash from the companies’ accounts for personal use without refund,” he says.

He emphasises that profit sharing and dividends should be paid from net profits and that small businesses should stop the habit of unbridled withdrawal of funds from companies’ bank accounts for personal use, which has no potential of growing the business.