Entrepreneurship involves a lot of risk and it is all about taking the risk. No one plans or prays for his/her business to go negatively, as much as we wish everything to go as smooth as possible there is ‘’no sure’’ thing in business and when doing business a lot of things can actually go wrong when starting up a business and another thing is that there is always the possibility of failure. That is why we must however plan to manage and reduce the risk to the barest minimum when starting up a business. A lot of pitfalls can be avoided with careful and proper planning, although there might e unforeseen circumstances where you will need to display a more creative thinking, flexibility, planning and of course persistence. Business are more vulnerable to failure during the early years of trading, with 20per cent of new businesses folding up within the first year of operation and 50 per cent of new businesses folding up within their first three years. The figure is not to scare you or reduce your interest in business but to prepare you for some of the unforeseen challenges entrepreneur faces when starting up a business. I will highlight and discuss useful tips to prevent start-up mishaps.
Inadequate Capital or funds
The most common reasons why many new businesses ended up closing down are because the owner or entrepreneurs runs out of money. Adequate cash flow is very relevant and important to a start up business. Cash is a vital and key instrument in a start up business or venture and you need to make adequate preparations for it. A good option and advice is to make sure you have adequate and enough capital or funds generated from your investment or sourced from an outside source other than your business (bank loan, private investors etc). You can actually go into the business and not starting so big and earn up things, and you can do it on a part time basis till you are able to gather up enough funds to start big.
Poor or inadequate Market research
Undergoing proper market research and planning are vital and key factors and measure to ensure that your business idea is viable and also that your pricing is reasonably competitive in your market place and can provide an adequate return on investment. Lack of proper market research is a key problem for a new business entrepreneur can face. Someone can easily be carried away with a business idea and set up a business without doing a viability test. Getting an accurate market data will help a lot in preventing over optimistic forecasts. It is of great importance to put into consideration what are your audience or customers needs and use market research to test them.
Inadequate financial planning
Financial planning is extremely important for most businesses because this serves as the backbone for new businesses. A lack of contingency plan and the reluctance to seek professional advice can all bring major problem.
- Lack of contingency planning: Without a proper contingency plan you will have your business exposed to the unexpected situation beyond your control and this have an impact on your business.
- Reluctance to seek professional advice: Failure to seek professional advice will make any financial trouble you face worse. Using a professional accountant or financial adviser can help you ensure you borrow and also manage money borrowed or investors money cost- effectively.
It is very important to make realistic forecast about your business potential. During business start up it is easy to make over- optimistic forecast but this can be really be dangerous and have serious consequences on your business especially if your projections are not realistic. Inaccurate forecasting can often be linked with inadequate or poor market research, so it is essential to get your market research right. A common mistake most new business make is forecasting too much on growing volume and sales rather than profit.
Neglecting the competition
During the start- up phase of a business, it is easy to neglect setting aside enough time to monitor the competition. And it is very important that you are ready to respond to competitions in your market place and new developments. When you fail to monitor your rivals, it will stop you from seeing what competition or threats to your business existing in your market place. Clues of existence of competition can be gathered from:
- Press reports
- Exhibitions and trade fairs
- Approaches reported by your customers
- Searching on the web for similar products and services
Failure to use the information gathered about the competitors will weaken your stand and position in the market.
Poor supplier and customer control
Most mistakes for new businesses include setting up unsatisfactory credit arrangements and not taking due diligence when choosing the suppliers. Carefully choosing suppliers should be taken with priority as our business profitability and reputation could be at stake. Finding a reliable and competitively priced supplier can be the pivot change to success of our business. This is because your businesses rely on supplier’s goods and services rendered to your business to operate and getting a good deal and pricing would have a significant effect on your business profit.
Poor stock and assets management
Poor stock control and excessive or over- investment in fixed assets implies your capital is tied up unnecessarily and this is not good for business.
Poor stock control
When an efficient stock control is put in place it means you are having the right amount of stocks in the right place at the right time. This assures that capital is not tied up unnecessarily. There must be a system put in place to closely monitor stock levels and values and this will allow you to free up cash and having the right amount of stocks on hand. Ways to approach stock controls are:
- Just in time(JIT)
- Re- order when stock reach a certain minimum level
- Carrying out regular stock checks.
Over investment in fixed assets
When you are over investing in fixed assets you are drawing up your cash reserves unnecessarily, and these can poise a problem. You can reduce over spending on fixed assets by leasing assets, buying second hand to reduce over investment in fixed assets like office equipments, furniture, computers and other things.
Hiring the wrong people
The great portion of your business success will be determined by the quality of the workforce you recruited and these takes careful consideration. Hiring the right high calibre of people with more of skills is not an easy task and it should be considered carefully because it will pay the dividends.
Business fails when you fail to prepare and plan to succeed. I have carefully highlighted and discussed eight ways you can prevent mishap and failure in your business. I will highlight the eight (8) tips.
- Inadequate capital or funds
- Poor or inadequate market research
- Inadequate financial planning
- Over forecasting
- Neglecting the competition
- Poor supplier and customer control
- Poor stock and asset management
- Over investment in fixed assets
- Hiring the wrong people