How do you avoid bad business decisions?

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At least 4,000 businesses went insolvent in South Africa in 2013. It’s an unbelievable number of bad business decisions. These are insolvencies that are reported. Imagine how many businesses went bankrupt without being reported.

The human impact and scale of so many insolvencies is so huge that it’s difficult to even comprehend the full extent of the tragedy.

Small business owners who had to shut their doors and try something new.

Employees who lost their jobs.

Stock that had to be sold at reduced prices.

Auctions that took place to sell assets such as buildings, vehicles and machinery.

Living standards that fell overnight to zero.

Paid-up-for-homes that are to be vacated.

Some might say that these business owners should have had early warning systems and seen trouble on the horizon long before it wiped them out.

But that’s easy to say.

Especially for someone who has never run their own business.

Someone who has never dealt with the realities of coming up with a business idea, developing the idea and implementing it.

Someone who has never been responsible for making payroll each month end.

Someone who hasn’t had to juggle customer payments against money owing to suppliers.

Someone who hasn’t dealt with under motivated and unskilled.

Someone who hasn’t dealt with employee problems.

Someone who hasn’t had to struggle with an unscrupulous business partner.

Small businesses begin with optimism.

You know how it is, starting something new and believing that you’re going to make the big time. You can achieve your freedom that you always wanted. You can improve your lifestyle, drive a fancy car and move to a bigger home. Be respected by your family, friends and neighbours.

But it nearly always doesn’t turn out that way does it? The revenue projections you made for your business or too optimistic. You took gone more than you could chew. You thought that you could deal with every problem that comes that would come your way but now you realise that you don’t know the answer to everything.

Out of sheer desperation you begin to make decisions that are not always in the best interests of your business. Suddenly you see the impact of your decisions and the medium and long-term consequences. Your business is in a long nose dive and you don’t know how to put yourself out of it.

How can you avoid bad business decisions?

One almost full proof way is to have a long apprenticeship in a business that your father or mother owned. They you will learn to make mistakes and poor decisions but you will have a guiding hand to mentor you and show you the error of your ways.

You’ll make so many decisions that you’ll eventually be able to run your business in your sleep. To have had this opportunity in life is very lucky indeed. Many people who start their own small businesses unfortunately don’t have a family history of operating and running a small business.

They’ve either got to acquire a business education by working for someone else or jumping into it and learning along the way by trial and error. A business education can help but there is very little education out there that really understands the needs of the small business owner.

One way that better business decisions can be made is through the help of a business adviser. But so many people have got burnt by the well-meaning advice of business advisers that it’s important to check out their credentials very carefully before you bring them on board.

It’s actually sickening to watch accountants and lawyers dishing out business advice because of their so-called learning and authority but really know absolutely zero about running a small business.

The other main objection that small business owners have towards business advisers is their professional fees. A good business adviser or business coach is not going to give away their services for free because they have spent many years acquiring the skills knowledge and experience to create value for others.

Small business owners will go get an overdraft from a bank, sign a surety and believe that they have got a good deal. But they’ll only realise the true cost of what they have bought when the bank calls in their loan.

For an overdraft of one or two months sales they could end up “paying” with their assets and hard earned savings over the years. Begrudging a small business adviser who has rescued other small businesses doesn’t seem to make sense.

If you want “free” business advice for your small business perhaps you can tap into a network of fellow small business people or have an inner circle of business advisers.

But the thing you need to remember it is that this “free” business advice has no strings attached from those who so freely dish it out. Yes, you may say that their reputation is at stake but if they give you bad advice that might just shrug it off and say “well, I told you I wasn’t an expert”.

Small business advisers could help you to avoid making bad business decisions.

But for my money I would only pick a small business adviser who has advised a range of small businesses and understands all aspects of running a small business.

I wouldn’t go for someone who has given the same piece of advice for the past 20 years to 5,000 small business owners.

Maybe the small business adviser is an expert in this one area but for a full analysis of my business I would go to somebody who is well versed in all aspects of running a business.

But remember that business advice is just another risk in your business that you need to manage.

Bad business advice is costly.

Don’t take any one business adviser’s advice and implement it without getting a second or third opinion.

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By Chesney on May 15, 2014 · Posted in Main Content

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