A woman who lived in a southern African country told me a story of how a pilot who had several years flying experience went to a tourist resort to CASEVAC a tourist who had a medical problem. The pilot took off as the sun was setting and made a misjudgement on the height of a mountain after take off because of the poor light and distortion of visibility. He crashed the aeroplane into the mountain side killing himself, the foreign tourist and the medical personnel.
In a small business such “pilot error” may not have life-threatening consequences but it could mean the demise of the small business. In owning and running a small business it is usually not one mistake that leads to the business’s eventual closure but a combination. You can’t live in fear that something is going to go wrong but at least you can take prudent precautions.
One prominent mistake is to choose a business that isn’t profitable from the start. The business may require heavy operations but the profits are not forthcoming to give the business a medium-to-long-term start. In this case, you either have to find where the profit is in the business and pursue it or sadly shut it down.
Running out of cash is another mistake that can have serious consequences. The time between purchasing your stock on credit and making the sale to get paid can be too long to be viable. Inadequate cash flow is like blood in the body – if it is not healthy and flowing, you can go out of business unless immediate action is taken.
Small business owners sometimes blame a failing business on external factors but don’t look within. A serious problem that could lead to a fatal mistake is inexperienced or management that is not up to the task. Your small business may have outgrown you and you are unable to manage and plan as well as handle the complexity of your operation. It’s important to take stock and evaluate and assess what skills and management expertise are required in your business.
Small businesses are often started on a shoestring. This means that their capital is not sufficient for the business. It may not only be physical equipment but also being able to finance the initial overheads and stock to keep the business going. But it also takes correct the decision-making to decide on the right type of financing such as matching short term capital requirements with short term funding and long-term capital requirements with long-term funding. Inadequate capital can simply mean that you are continually battling it from month to month until things get out of hand and you have to liquidate the business.
Although I have left this for last it’s certainly not the least important. That is to know your market demand, what your customers want, their buying habits, how to reach them and knowing exactly how they are changing over time. If you don’t, for example, know their purchase cycle how can you plan ahead? If you don’t know the average purchasers and how much they plan to purchase, for example, each year, then how well do you really understand your customer base? You always need to be highly sensitive to changes in market demand because they could signal trouble ahead.
Instead of ignoring the first danger signals in your small business, it’s important that you acknowledge a potential threat and plan accordingly. If the trouble that you are sensing is out of your experience or expertise domain, it’s always advisable to call in someone who can give you a second opinion, dig deeper and help you come up with an action plan.