For all the hard work it takes to start a business and make it profitable, it is remarkable how quickly a few bad decisions can cripple a business and drive it into the ground.
Barry Moltz, a frequent contributor to OPENForum, offers what he calls the five most common mistakes “that will quickly put you out of business” (with suggestions on how to avoid them).
Failing to Manage Your Cash
“Every company goes out of business for exactly the same reason,” Moltz notes. “They run out of cash.”
Building a business is not just about growing sales or profit. It is about closely tracking your company's financials, and eventually increasing, the cash your company can retain.
Make sure to read your cash flow statement every month “... and figure out the sources and uses of cash in your business.”
At the very least, Moltz says, look at a reconciled bank statement to determine whether your business has more or less cash at the end of the month.
Breaking Promises to Stakeholders
Actually, breaking promises can easily lead to lying to your employees, customers, and vendors. “Mistakes will happen, but for some reason, entrepreneurs repeatedly commit to product features, delivery or service levels that are unrealistic or unprofitable.”
The solution? Be ruthlessly honest about what you can achieve, “regardless of how painful it may be at the time.”
By being open with people you work with, you build invaluable trust and loyalty.
Neglecting Computer Security
Small businesses are frequent targets of cybercrime “because they traditionally have fewer resources to protect their company,” Moltz says.
It is reported that more than 75 percent of data breaches are aimed at small businesses, and close to 60 percent of these companies go out of business within six months of such an attack.
Avoid this critical mistake by regularly upgrading technology and use antivirus software on all company computers. But do not stop there. Apply the same approach to the devices your employees bring to work.
If you do not, the trend toward BYOD (“bring your own device”) may result in costly cyber attacks.
Failing to Establish Human Resource Policies
As a company grows, it becomes necessary to establish formal HR policies. There are too many laws on the books that employers can unwittingly flaunt—from workplace discrimination to sexual harassment—and if you do not protect yourself and your employees, a civil or criminal lawsuit can inflict major damage.
Moltz advises creating a handbook and policies “soon after hiring the first employee.”
Seek assistance either through cloud-based solutions or by hiring professional HR consultants.
A Lack of Focus on What the Customer Wants
A business is free to make and sell anything it wants. But success only comes from making and selling what customers want. And what they want is a constantly moving target.
Always strive to focus on customers who benefit from your product or service “and target those people who can pay for what you are selling.”
Remember that tastes and needs change over time, so make the commitment to adapt to market fluctuations.
Quickest Way Out of Business
Of course, the quickest way out of business is the first reason Moltz mentions: You run out of cash.
Just like learning how to balance your checkbook as a teenager, every business owner must figure out how to manage cashflow, deal with HR issues, and read the minds of its customers.
Once you figure those things out, your organization's livelihood will last.
What do you do to avoid actions that could quickly put you out of business?
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