If you're starting a small business, odds are that someone has pointed out just how often small businesses fail and asked you if that's really a risk you want to take. You have probably assured them that you know there is a risk, but you're ready for it, and you have the keys to success.
Well, one thing they may not have pointed out is that business failure is not always as random as it feels. In many cases, business owners make serious financial mistakes. These cut into profits and leave them facing bankruptcy. What are some of these errors?
1. Buying things impulsively
You feel excited to start your company. You have an idea in mind of what you want it to look like. The problem is that you're imagining a multi-million dollar business. You impulsively go out and buy all sorts of extravagant items: company cars, high-end computers, an expensive modern workspace, a coffee bar, etc. You build the business you dreamed of, but that impulse buying with no thought to productivity or financial constraints puts you in a hole.
2. Not having any cash on hand
Most of the time, it is wise to invest your money back into the company. However, you may want to keep some cash on hand for emergencies and unexpected issues. If you put everything into paying salaries, buying products and building up the company, you have no safety net when something goes wrong. One major problem can sink the business.
3. Diversifying too soon
Don't take this the wrong way: Diversification is good. You shouldn't get stagnant. However, if you try to push too far, too fast, you may end up spending money on new products and developments before you have actually solidified your position. You need to invest money in yourself and in growing the business before you try to branch out.
4. Being busy without getting much done
Your time is valuable. If you're busy, you feel like you're working hard, but you need to step back and see what you've actually accomplished. Are you productive or just busy? Are you accomplishing your goals or just wasting time and money? Are there more efficient ways you could get everything done? You may find out that changing your procedures slightly makes it easier to get everything done in less time, freeing you up to focus on important tasks like growing the brand.
If you hit bankruptcy
These are just a few of the reasons that companies find themselves headed for bankruptcy, along with competition issues, market changes, economic challenges in the area and much more. If you do find yourself considering it, make sure you know exactly what legal steps to take.