Almost all industries and businesses have felt the pressure of the recent economic slowdown and many seem to be struggling to cut costs and improve profitability. Hence, it is important for businesses to avoid making mistakes as they continue to walk a tightrope. In this context, My Startup World presents a list of mistakes that every business must avoid to ensure they are successful and continually growing.
Starting without a written business plan
They is a saying “a planned start is half success”, which is very true in business and every business must start with a written business plan. A written business plan will allow the entrepreneur to effectively convey his/her vision to prospective investors, employees, customers, suppliers and align everybody’s interest in the same direction.
Also, through the process of writing a business plan, the entrepreneur has the chance to gain clarity about the objectives of the company, gain a deeper understanding of the industry and have milestones, which would be a very good roadmap for the business to follow in its early days. In addition, a good business plan must always have financial projections that are realistic.
Though a lot of ideas might sound great in a discussion, it is important to create a financial model for the business and project Return on Investments based on several realistic scenarios. Therefore, a good business plan can help the entrepreneur from being disorganized or avoid undertaking non-profitable ventures.
Many entrepreneurs invest a lot of time, money and effort to start a business, only to find that they are unsuccessful because they overlooked a few key details. A well written business plan can help businesses avoid this costly mistake.
Starting a business without the right funding
While starting a business, its vital to estimate the cost of the project along with the means of finance. It is vital to secure funding before making any significant investment in the project. Many businesses start without proper estimation of cost of project or funding arrangement, leading to a compromise in the quality of the project, delay in completion of the project or non-completion of the project.
Therefore, before starting any significant investment into the project, it is vital to secure funding for the project and create realistic cash-flow projections on a month-on-month basis for upto a year.
Working capital funds mismanagement
For any entrepreneur or business owner, it is imperative that they have a basic understanding of finance and accounting principles to be successful. Studies list “Poor Financial Management” as the number one reason for business failure. Therefore, an entrepreneur must be knowledgeable enough to distinguish between short term funds and long-term funds, and utilize them properly.
Many businesses run into a series of problem stemming from diversion of working capital funds for long term uses such as capital asset creation, discretionary expenses, etc., Therefore, to ensure the operations of the company runs without any hitch, an entrepreneur must avoid diversion of working capital funds, over reliance on supplier credit, borrowing at high cost and a scarcity of working capital funds.
Lack of internal controls or improper bookkeeping
Lack of systems for proper bookkeeping or late filing of financial information with statutory authorities is a sign of a business in trouble. Every business must have in-built systems and processes to present financial and operational information to the management and regulators.
Constant and accurate feedback in-terms of operations and financial data can help the management make correct decisions based on hard facts and keep the business agile. Lack of systems and process to generate financial and operational information is like flying an aircraft blind, and can lead to major mistakes and seriously hamper with the management’s ability to make timely corrections to keep the business progressing in the right direction.
Also, proper internal controls are necessary in every business to avoid instances of employee/supplier fraud and help foster a professional work culture in the business.
Under-utilization of assets
Businesses work on the premises of investing in assets in expectation of higher returns from the assets in the future. Therefore, it is important to keep a watch on the invested assets of the company in the form of (land, building, machinery, people, brand, etc.,) and make sure they are continually being maintained and utilized to achieve acceptable Return on Investment.
It is important for the management to constantly lookout for non-performing assets and bring them to utilization or liquidate them at the earliest to avoid unnecessary costs. Allowing underutilized assets to remain in the business without any repercussions will lead to the fostering of an unproductive work culture in the business, which could be disastrous.
