All businesses will hit lean patches and face challenges from time to time. But many of these challenges are predictable and even preventable, given the right amount of planning and careful management of cash-flow, clients and staff. These are the top ten mistakes made by small businesses time and time again. Make sure you don't fall foul of any of them...
1. Ignore cash-flow at your peril
Few things are more fundamental to a well-run business, or more likely to sink a badly run one, than how you run your cash-flow. All the happy clients and efficient staff in the world won’t help if your cash management is poor. Failure to pay overheads on time, be they rent or salaries, can very quickly prove terminal.
2. Registering as the wrong sort of corporate entity
There may be flaws in the most fundamental aspects of your business. For example if you trade as a limited company, being registered as an LLP might be more appropriate. Getting it wrong can lead to unnecessary red tape and higher tax bills. Take advice to ensure you are not on the wrong track.
3. Over-trading is as bad as under-trading
Beware the perils of over-extending. In the current sluggish climate, it’s tempting to say yes to every sniff of work that you get. But taking on more work than you can handle risks jeopardising the service given to existing customers, not too mention your blood pressure.
4. and 5. Over-hiring and over-firing
While the UK’s employment laws are among the most flexible in Europe, taking on or shedding too many staff takes time and comes with a cost. Being caught out with substantially too many or too few staff following a change in workload can put great stress on the business, and waste time as you scrabble to adapt.
6. Avoid collecting client debts too late and paying creditors too early
Ensure that you always have a sufficient cushion of working capital. Protect it by chasing late payers, and paying your own debts just as they fall due, not before.
7. Moving into new markets or sectors without sufficient research
It’s risky at best and suicidal at worst. Extending your business’ offering is a great way to boost revenue, but get it wrong and you risk damaging the successful core business you’ve worked so hard to build.
8. Failing to plan strategically
While the current straitened economic times mean many businesses are swimming hard just to stay still, you should never confuse crisis management for strategy. You must take a moment to look beyond the day-to-day running of the business to plan for the future. While no one can foresee everything that will happen to a business, investing the time to plan what you want to happen and how you’ll respond if it doesn’t is time well spent.
9. Failing to invest in and retain key staff
While the impact of talented staff may not always be felt directly, you’ll soon regret not looking after them if they jump ship to join your rivals. Keeping them motivated with benefits and encouragement is an investment in your company’s future.
10. Not speaking early enough to HMRC
Failing to warn HMRC or other creditors that you’re struggling can be the difference between survival and sinking. Approached early, they will often be willing to negotiate a realistic payment plan – but leave it too late and you could be hit with an unaffordable bill.
Michael Davis is managing partner of HW Fisher & Company chartered accountants