Common business mistakes you must avoid
Only a few small and medium enterprises survive to witness their fifth anniversary due to avoidable mistakes their owners knowingly or inadvertently make. DARE OLAWIN highlights some of these mistakes
There is no gainsaying that Nigerians are hardworking, very enterprising and eager to explore new business opportunities. They are a people ready to take business risks, even in the face of harsh economic conditions. However, it is concerning that many businesses in the country have a very short lifespan.
A report by the Small and Medium Scale Enterprises Development Agency of Nigeria indicated that 80 per cent of small businesses in the country fold up before their fifth anniversary due to harsh economic conditions. Besides the tough operating environment, errors by the proprietors are also a major reason businesses die prematurely. In most cases this has nothing to do with whether one goes to school or not; after all, there are many successful traders among the unlettered ones in the society.
To prevent your business from entering into the list of businesses that pack up before their fifth anniversary, you must avoid these mistakes:
Improper planning
Management is nothing but planning. To manage is to plan and this encompasses budgeting, directing, coordinating, organising and evaluating. So, anyone who fails in this aspect will have himself to blame. There is a popular saying that he who fails to plan plans to fail. Many businesses fail. Many business owners fail to have holistic plans before they hit the market.
Carrying out a preliminary feasibility study is crucial to determine the viability and merits of a proposed project or undertaking. Starting a business without a clear-cut plan can lead to aimless direction and neglect of crucial business components such as budgeting and inventory management.
Lack of skills
A would-be business owner is not expected to wake up one day and jump at a business idea. He must have enough understanding of the business, learning the pros and cons of the business to avoid running into problems. Anyone setting up a new business must learn the nitty-gritty of it before venturing into it. There is nothing wrong with picking interest in an area you do not know much about, but in doing so, experts must be consulted. They must be carried along right from the gestation period.
As an entrepreneur, learn and keep learning. Read books to acquire the right skills. Know the strengths, weaknesses, threats and opportunities of what you are dabbling into. This is what experts call SWOT analysis.
Mixing business and pleasure
Most entrepreneurs fail to draw a line between business and pleasure. Because it is their own business and they are not under the directive of any boss, they choose to do things at their convenience. But businesses have their culture, which must be observed by anyone who desires success. As an entrepreneur, you have to set boundaries; and clearly define when you are “on the clock” for business and when you are off duty for personal activities. Establish specific work hours and stick to them as much as possible. Yes, no one will sanction you for late coming, but remember your investment is at stake. Your customers have choices. Designate separate physical spaces for work and leisure activities. Have a dedicated home office or workspace where you conduct business, and avoid mixing it with areas meant for relaxation or family time.
Family and friends factor
It is important to separate businesses from friends and relatives. In Nigeria, relatives tend to seek undue favour from one of them in business. People want to ‘patronise’ a family member or friend for free goods or services, for discounts or to buy on credit. These acts are capable of killing the business by affecting cash flow and earnings. There is no sentiment in business, do not allow relatives to bring down what you have been labouring for. Let them know the difference between a profit-making establishment and a charity organisation.
The culture of selling goods to people on credit is rampant among small and medium startups, especially those in the informal sector of the economy. There is a general belief among them that if you do not sell to people on credit, you may not make enough sales. However, several businesses have collapsed due to unpaid debts, particularly by people who are not traceable. Selling goods or rendering services on credit is not bad, but it must be done with utmost caution. As an entrepreneur, it’s generally advisable to avoid selling goods on credit. Selling goods on credit ties up your cash flow, as you have to wait for customers to pay their invoices before receiving payment. This can strain your finances, especially if you rely on that cash to cover expenses like restocking or operational costs. Also, extending credit to customers introduces the risk of non-payment or late payment. This risk is particularly high for startups, which may lack the resources or infrastructure to effectively assess customers’ creditworthiness or pursue collections if payments are overdue.
Poor accounting
Everybody needs minimum accounting skills in their day-to-day activities. Even if you cannot hire an accountant, you must be able to calculate your income and expenditure, to determine whether or not you are making a profit.
In other words, proper accounting provides SMEs with a clear picture of their financial health. It enables them to track income, expenses, assets, and liabilities, allowing for better financial decision-making and resource allocation. Overall, proper accounting is essential for SMEs to maintain financial stability, comply with regulations, access funding, plan for the future, control costs, manage risks, and support business growth. If you can, hire a reliable accountant. If you cannot, get trusted relatives to assist.
Dipping hands into capital
One of the reasons businesses fail is a lack of self-control when it comes to fund management. Many entrepreneurs do not know that taking care of other expenses should not be from their capital. Your business account must be separated from your account. It is a sacrilege to spend your business fund on your personal needs. If you do that, you are plotting the failure of the business.
Employing wrong workers
Those working with you are as important as your business. Their actions may make or mar your investment. Some employees absconded with money belonging to their principals. Please apply serious caution when it is time to recruit managers, secretaries, salespersons, accountants and others.
Other common errors that could cost SMEs their investments include, poor customer relations, wrong decisions, too much borrowing, especially from loan sharks, all forms of irresponsible acts, among others.
A financial expert and entrepreneur, Adewale Adedeji, expressed concern over how some individuals would still allow their investments to break down despite the challenges encountered before setting up the business.
Adedeji, a former banker said most new businesses have the problem of finance at the earliest formation and usually don’t survive it. According to him many business ideas and investments are under what he called heavy dusts.
“Our financial institutions are not readily available to support these categories of businesses because they see them as startups. They don’t have the patience to wait through and rarely commit moratorium for these new businesses,” he said.
Consequently, he urged entrepreneurs to pay rapt attention to their businesses and avoid common errors that could erode their investments.
