Identifying Surefire Business Killers: Strategies for Prevention

Operating a business has its challenges due to the many and varied issues drawing on the owners time – people, product, sales, collections, just to name a few. Thus it’s no wonder that many business owners operate “in” rather than “on” their business – which has its dangers.

Heading the list of dangers is the loss of sight of the “whole of business” picture, because as the business owner, you are too close to just one element. It’s like falling in love with the look of a shiny red sports car because that’s all you see – whereas if you; open the doors, pop the bonnet, start the engine, check out the suspension etc, you may find that the fantastic looking sports car is in fact a broken down bomb with a shiny paint job!

Taking a step back and looking at the whole business will always provide a better perspective…AND…will better position you to avoid these common business killers.

Below Budget Performance

• Every forecast and business plan that I have ever seen has included revenue and expense budgets which needed to be met for the business to be viable. Accepting below budget revenue or above budget expense values – or worse – both, for any sustained period will either badly wound or kill a business. These critical areas need to be measured and if the required thresholds are not being attained, then changes are required to maintain balance. It is not simply good enough to measure this area, corrective and timely action must be taken.

Lack of Capital

• Businesses typically operate with some form of external finance, but the core business funding – needs to be capital. Many businesses under-estimate the level of capital required to get a business going, so this places a level of pressure on it from the start and can impact the way external finance is sourced and under what terms. But..….the biggest risk for business is allowing their capital to be eroded with poor trading to the point where they become undercapitalised. Trading losses (or at best break-even), combined with a tight cashflow and business growth make for an almost impossible capital situation. To counter this, the prudent business owner will ensure that they have the appropriate capital reserves to fund their business – be it from personal reserves, new partners, capital raising or grants.

Ineffective Marketing/Advertising

• Small to medium business marketing is often a loosely connected bunch of activities – some printed ads here, some social media there, a web site, mail outs etc. Clarity of the message, pitched to your defined audience along with coordination of the activities will provide a better return. A well thought-out marketing strategy will deliver a greater return for effort, as you have improved your effectiveness if not your advertising spend. Less focus should be on “how much I spend” (often businesses are actually not spending enough), and more on “the return I get” – so all campaigns must include measurement disciplines. One further point to consider is that the business market changes. What you did yesterday may not be the best marketing/advertising for today, or for that matter; tomorrow – hence ongoing evaluation is essential.

Obsolete Product Range

• Every product has its natural life cycle at which point it either evolves to an updated version or simply vanishes from the market.  Computers are an example of an evolutionary product which has continually changed and improved, whereas video cassette based products have simply vanished from the market. Businesses need to regularly assess their product/service range for relevance in the market. This may mean that some products will be updated or replaced, or that margins and distribution markets need to be changed. Either way, a proactive approach is best as if you are left with an obsolete product range – your business will likely follow it!

Operational Risks

• Operational risk include both internal and external risks which can impact your business – and vary from the consequence of losing a critical certification to a fire at your premises, through to a natural disaster. Every business has these risks, yet few have robust mitigation plans in place. The most common events of fire or theft are normally insured, but past that many other risks are simply not identified or ignored. Working within the business, you should be able to identify what risks are pertinent to your business, the likely impact (in dollar terms) and the expected frequency of it occurring. Small infrequent risk may be accepted as a cost of doing business; however larger ones may require a specific strategy. The key action is to assess this now – before the incident occurs – and take action to mitigate its impact on the business.

Left unchecked; any of these business killers have the potential to close your business. Couple two or three of them together and the pace with which your business can deteriorate can be frightening. 

The proven way to avoid to all of these is via strong forward planning to define what is acceptable for your business, coupled with accurate ongoing measurement/assessment– PLUS – remedial action when required.

Using this combination will ensure that as you approach any trading rough spots, you have the ability to take early action and avoid significant damage.