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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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Business Killers

Business Killers Part 2

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Watch out for these common business killers! Here is the second part of the series, with 4 more business killers.

Cobwebs on Accounts Receivable. Avoid extending credit to customers if you can. The problem is, in businesses for which customer credit is the industry standard, the owner gets drawn into play now pay later because all the competitors do it. The model works well for many businesses, but owners who do extend credit have to stay on top of collecting monies owed to them. A good bookkeeper will provide an aging accounts receivable report a few days after each month-end. Receivable collection is not always the most enjoyable part of owning an enterprise, but effective owners understand that cash flow is the lifeblood of the business and that a cash-starved venture has one foot in bankruptcy court. If you must extend credit, make collections a regular practice, factor the cost of an operating loan into prices, and be prepared to ditch customers that persistently make collecting difficult and costly.

Not Paying Bills. When business is going well, owner’s work long and hard; make hay while the sun shines. In a perfect world, business brings in more money than needed to pay the expenses, with a bit left over to call profit. However, the marketplace occasionally throws nasty curve balls that tilt the financial ratios the wrong way and cause businesses to lose money. Business finances are like a house of cards; weak sales or high costs can trigger a wicked chain of events resulting in unpaid bills, from trade accounts to bank loans to taxes. Once the house of cards starts to tumble, an owner has to work even harder to get back on top of the bills. A protracted financial crisis brings on burnout, disillusionment and eventual abandonment. The cure is simple, not always easy; stay on top of your bills and have a rainy day fund ready in case you need it.

Persistent Low Bidding. Any fool can go out and get a lot of work by undercutting competitors. It’s true that most businesses will occasionally slash prices to get a foot in the door with certain customers. However, low-balling is a strategy best left to those with deep pockets. Businesses with solid bookkeeping systems in place will be able to spot low-bid issues early. In the absence of a good bookkeeping system, owners are left to discover low-bid problems at the end of the year when they can’t pay their bills. The simple solution to the low-bid challenge is to increase prices high enough to produce a bit of profit; those who don’t are relegated to struggle or face the eventual penalty of insolvency.

Debt Heavy. Some entrepreneurs grumble about how difficult it can be to get funding, or that lenders are too tough. It’s true that lenders can be a bit tight fisted, but they know the risks involved, and they know first-hand how difficult it can be to squeeze loan payments out of a dying business. Bank loans cost money and create stress on business finances; the larger the loan, the higher the cost. Smart business owners recognize that not all problems are solved with debt and continually seek ways to innovate solutions to problems without increasing debt. They also take care not to run the debt up to more than the business can comfortably repay.

In the next part of the series, we will cover such business killers as bad customer service, financial illiteracy, fumbling growth, and burnout.

Business Growth, Business Killers, Entrepreneurship

Business Killers Part 1

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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?

As a business owner and coach, I am privileged to meet many good people building bustling businesses, but unfortunately too many struggle or fail due the following deadly traps. Here are the most common pitfalls that, if left unattended, will knock your business off the rails and into the gutter.

1.    Too Many Stupid Decisions. It takes a balance of thought and action to be successful in business. Too much thought will cause you to miss opportunities, and yet thoughtless action will lead you into the jaws of bankruptcy. Everyone makes mistakes, but too many blunders will keep a business in the poorhouse. It takes relentless due diligence and a lot of street smarts to succeed. Survivors tend to respect risk, do their homework, learn from mistakes, and keep losses to a minimum.

2.    Aunt Martha’s Whacky Bookkeeping. Scratch the surface of any failing business and you’ll discover they’re either doing their own books or have a flimsy arrangement with some friend or relative who doesn’t know squat about doing bookkeeping. Every once in a while the backyard bookkeeper works out, but mostly it leads to disaster. The bookkeeping system is the foundation for all business decisions. Without timely and accurate financial information, a business owner is running blind and it’s only a matter of time before he hits a wall. Successful entrepreneurs hire competent bookkeepers and treat them like gold.

3. Urinating In the Tax Collector’s Cornflakes. It’s easy to understand why business owners might be at odds with tax authorities. The nice folks from the taxation office always scoop more money than we think they should, they tend not to play nice if you get behind, and they’ll cheerfully take your business down if you can’t afford to pay. Once you’re behind on taxes, you really fall hard because of the deadly two-punch penalty-interest combination that spins a seemingly innocent amount into a blazing concern in no time at all. You don’t have to love taxes or the people that collect them, but you do have to respect them.

4.    No Rainy Day Fund. When a business begins to generate cash flow there are financial distractions. There is a compelling urge to peel off a bit of cash to buy special toys or trinkets. While it’s important to reward yourself for all the hard work, there comes a time in every owner’s business life when a personal nest egg is needed to avoid a financial black eye or even a bankruptcy. The ideal time to save money is when things are going well; the problem is—when business is booming, the last thing on anyone’s mind is saving. If you haven’t already done so, open a savings account and starting saving money today. When that rainy day comes, you’ll be glad you did.

Too many new business owners fall prey to these and the many other traps identified in parts two and three of this article. Stay tuned to learn about other business killers, such as uncollected receivables, high debt, relentless low-bidding, and more.