Category Archives: Business Killers

Business Killers

Top 10 Business Killers: Know ‘Em, Avoid ‘Em

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It’s disturbing to have to reject a business plan, but sometimes it’s the best choice for all stakeholders. As a volunteer for a lending committee, I wish we could approve every loan application that hit our table; unfortunately it’s not possible. The committee meets as-needed to review business plans and decide whether or not to finance the applicants. We deal with mostly very small businesses seeking small loans, usually under $250,000. Lending to inexperienced, new business owners is one of the riskiest arenas for a lending agency. In spite of this fact, we manage to keep our loss rate to a minimum. Over a period of more than a dozen years, I have observed certain challenges surfacing again and again. The amazing thing about these business plan killers is that they rarely travel alone – they almost always appear in clusters. Here are the top ten business plan killers and what you can do to avoid or fix them: Continue reading Top 10 Business Killers: Know ‘Em, Avoid ‘Em →

Business Killers

How Debt Can Become a Small Business Nightmare

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It starts out innocently enough, usually with a small loan or a couple trade accounts, but by the time the bailiff puts a lock on the door, the amount of debt has become one of the nails in the failing business’ coffin. Here’s how easily it can happen.

Imagine that you’re starting a venture with limited funds and eager to get the doors open and succeed.

A startling number of new businesses fail in the first five years. Lenders know new business is risky, and manage their loan portfolios accordingly. However, with the right security, such as equity in the family residence or a willing co-signer or guarantor, it’s entirely feasible to nail down a start-up loan for a risk-laden small enterprise.

So, congratulations are in order; you’ve got the loan and started your business. Let’s say the borrowed funds pay for leasehold improvements and enough operating money to see you through the start-up period.

Life is good, but you still need supplies. In the early days of business, suppliers can be an uncooperative lot—nobody wants to extend credit until they develop a relationship with you. So, following “Supplier Development Rules Of The Road”, you proceed to build relationships and apply to establish a couple trade accounts with enough headroom to enable you to order a month’s supply, as long as you pay within 30 days.

Because the business isn’t yet churning out enough margin to provide you with a paycheque, you might find yourself nicking the corporate credit card to buy a few groceries. Every new business owner knows this is evil, but most do it anyway. After all, you’ve got to eat. You intend to pay the card to zero at the end of each month, but as you bang it up with personal knick knacks, and the money just isn’t there to pay it down, the carryover gets higher each month.

You discover that you need a couple more trade accounts and use your newly-honed skills to set up a few more accounts. In the meantime, your responses to pre-approved credit card marketing campaigns procure you a couple more credit cards.

With trade accounts and other random sources of debt like credit cards, the trap is that none of them know what the others are up to, they rely on your diligence and integrity, and also hedge their bets on their expertise at extracting payment from you like bad teeth, regardless of how you’re managing your other debts. So, by cherry picking and presenting a small part of your financial picture to the disparate players, it’s entirely possible for a clever operator to outsmart the entire bunch, including yourself, and tilt the financial chariot so far off centre that you wake up one day with no hope of ever getting your business back into the black, and no possibility of ever repaying the amount you owe.

All it takes from there is a small disaster to tilt the financial house of cards into pandemonium. Perhaps one morning as you’re about to head off to work, your aging vehicle coughs and refuses to take you anywhere. A flurry of repairs and a yelling match later, you owe a mechanic $900, and the corporate credit card takes yet another hit.

That’s how debt can destroy a business. Credit can be evil. Just because you can borrow, doesn’t mean you should. Treat debt with respect.

Business Killers

Business Killers Part 4

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Previously in the blog, I published the first three of this series of articles on the simple things that kill small businesses. Here is the fourth and final part of the series, with four more 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.

Business Killers, Owning a Business

Business Killers Part 3

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caution-tapePreviously I posted Business Killers Part 1 and 2, and discussed such challenges as not staying on top of accounts receivable, falling behind on paying the bills, persistent low-bidding, and getting buried in debt. Here are four more business killers.

Lousy Customer Service. While most business owners are motivated to provide excellent customer service, problems creep into the workplace when the business starts to grow, requiring that the owner take on hired help. It should be the goal of every business to provide top-notch customer service for every person that comes through the door. No small business can afford to have employees chasing away customers. Owners need to provide training for employees and monitor customer service ongoing.

Financial Illiteracy. There are five financial reports that are critical to managing a business: the balance sheet, the income statement, the aging accounts payable, the aging accounts receivable, and the cash flow forecast. Too often, business owners who get into trouble don’t even know they’re insolvent until they’re turning the keys over to the landlord. It’s not enough to get financial reports and pop them into a file folder—you need to get them shortly after the end of each month and you must learn to read them and use the information to make business decisions. In order to be able to calculate prices and put together bids, owners need to know the cost of producing products and services, as well as the true cost of making sales.

Fumbling the Hurdles of Growth. Business start-up requires a certain set of skills, but owners who get through that early scramble are in for an even bigger challenge—expansion. Growth blows the doors off the micro-business model and invokes different threats, demanding a whole new set of skills. The path to growing a business from zero to several employees never seems straight or clear. It’s always cluttered with difficulties that exact critical decisions along the way, many of which can propel you forward or flat backward, depending on the quality of each decision. The keys to growing a business are: a clear vision, courage, passion, perseverance, a dash of good luck, and the ability to make more good decisions than bad.

Burnout. It’s fun and exhilarating to get caught up in a new business. The realization that you can build an enterprise and achieve financial and other dreams, the ability to chart your own path and sustain your family without having to punch a time clock or report in to a boss every day, the thrill of working at something you love to do—these are all wonderful things. But for some entrepreneurs, the real enemy is the inability to shut the business off. Working for others, you usually have welcome restrictions on the amount of time you can work—weekends, holidays, regular work hours—those restrictions all go out the window once you’re self-employed. When burnout overtakes a person, it usually comes at a high cost: unable to enjoy the work, too tired for leisure or family time, health issues, and limited energy to serve customers. The best time to battle burnout is before it happens. Set your work and personal boundaries early, exercise regularly, eat healthy foods, and take time each day for your family, friends and you.

Stay tuned for Business Killers Part 4 where I will cover such business killers as the cash flow crunch, fingers in too many pies, trying to be all things to all people, and knowing when to fold ‘em.

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