Ten deadly mistakes of entrepreneurship that could kill an entrepreneurs small business
This article is about the ten deadly mistakes of entrepreneurship. Deadly mistakes that I don’t want you to make. The article has been written by Russell Bowyer.
‘Good Advice Costs Money, But Bad Advice Costs More!’ Russell Bowyer, Entrepreneur
‘Deadly Mistakes‘ may seem a little over the top, as they’re not actually life threatening. But if you consider a company to be ‘Alive’, these mistakes may kill the company.
Although, I wanted to highlight the importance of these mistakes, because each one on their own could destroy your business. However, if you commit them in business, they can seem like they’re life threatening at the time.
Some of these mistakes I’ve committed myself. Having been in business since 1990, I’m bound to have made a few. Some of these are mistakes that I’ve seen other businesses owners commit.
What I’d like is for you to avoid them as a new startup entrepreneur. Towards the end of this article, I’ve created an info-graphic too on the ‘Ten Deadly Mistakes of Entrepreneurship’.
So what are the ten deadly mistakes of entrepreneurship that could kill your small business?
1. Avoiding confrontation
I, like many entrepreneurs (or people for that matter), want to be liked. I found it difficult when I was confronted by uncomfortable situations in my business. But when you are the business owner, on the whole, your staff cannot be your friends. You are not looking for employees to like you, but instead you are looking to garner respect and for them to look to you for leadership.
In my last large business, which I sold in 2016, I had more confrontation than all of my other business that I’d owned put together. This I put down to the type of business partly, but then I also have to take responsibility myself for not being strong enough.
One of the ten deadly mistakes of entrepreneurship is to avoid confrontation. The ability to deal with problems right away and ‘Head-on‘ will be a part of your success as an entrepreneur
The deadly mistake to make, is not confronting the situation head-on. Jump on the problem before it becomes a big problem. Plus don’t worry about ruffling feathers. To be an entrepreneur requires strength of character.
Sources of confrontation
i. Difficult employees and disciplinary situations
I learnt that employees are a little bit like children and need boundaries. Never be afraid to be hard when you have to be, but treat people fairly and with respect. You will garner more respect from employees when you stick to the rules.
Don’t let problems fester, but instead deal with situations as and when they arise. Never be afraid to discipline staff when necessary. And if the situation arises, be prepared to dismiss the employee using the correct HR procedure.
Leaving problems festering will ultimately lead to bad morale. It will also leave you with bad employees, who could ultimately upset your other staff and your customers. Deal with it and move on.
ii. Customers complaints and difficult customers
With any business you are going to get those customers that are more challenging than others. It might be your company has provided a sub-standard product or service, so the customer has a legitimate complaint.
If this is the case, never be afraid to deal with it right away. Own the problem and where necessary take it on the chin if your business has messed up.
Where problems are left, this can in turn lead to customers bad-mouthing your business. It will also lead to bad staff morale too. Staff never like dealing with difficult customers. It may be the customer is not actually difficult at all, but merely wanting an apology for bad service.
Not acting quickly with customers complaints could cost significantly and could even destroy your business in the long-term.
Four of the ten deadly mistakes of entrepreneurship relate to money and finances, which you’d expect as we’re talking business: Financial control; sales cycle; over-trading; and break-even point.
2. Poor financial control and failing to create a business plan…
Any business must make a profit to survive. However, what is even more important is cash flow. Remember as an entrepreneur that ‘Cash is King’ and you must turn your profits into cash.
Having a tight rein on your finances is key. This means making sure you receive money from your customers in good time, and preferably up-front. It also means keeping a tight control over your costs too.
Ten deadly mistakes of entrepreneurship includes ignoring the little costs of business
One of the ten deadly mistakes that entrepreneurs make, myself included, is that in the good times when profits are high you ignore the little costs. It is only when you suffer a down-turn that you find yourself counting every penny once again. No matter what level of profits your business is making, don’t make the mistake of becoming complacent over your costs.
Have good financial plans and always preparing annual cash flow forecasts. I recommend doing zero-based budgeting, where you begin with a clean slate. Start from scratch with what you plan to spend on each area within your business. Review these costs on a monthly basis to make sure your business is keeping within budget.
Make sure your sales are at least on target too. Plus keep an eye on your bank balance to make sure it is in line with the projected balance. If not, deal with the problem right away to remedy the situation, before it becomes a much larger problem. Banks and other lenders are more prepared to lend to a company which is in control and has foresight. What they don’t like is last-minute lending and poor management.
Failure to create and updated business plans…
Hand-in-hand with this deadly mistake of poor financial control, is the failing to plan. A high statistic of business death is the lack of business planning.
Also, businesses that have a business plan at the outset, fail to update the plan. No matter how well we plan, things change, things go wrong and things never quite go to plan. So it’s vital to update a business plan on a regular basis to avoid being on of the statistics of business failure.
Part of the business plan should include the finances of the business. Not only that, a good business plan should incorporate customer needs, a SWOT analysis, a marketing startegy and an operations plan.
3. Under estimating the sales cycle and how long the sale takes.
Many startup businesses under estimate how long it takes to secure deals with bigger enterprises. You need to budget for between six and 12 months at least for larger accounts to come on track. And this is before you even begin to invoice, let alone waiting for the company to pay you.
Quite often larger enterprises can demand upwards of 60-day payment terms, so having enough working capital to get you through this void period is critical.
Lack of cash or running out of capital is the number one reason for business failure
Plan on keeping your sales cycle as short as possible. Your sales cycle is the time between seeing a new customer, closing the sale, invoicing the sale and then receiving payment into your bank.
I recall when I first set up my accounting practice, I had forecast a certain number of clients in my first year. My projections were correct, but, what I got wrong was the time it would take to provide services to the majority of new clients and to invoice them for that work. Always be realistic in your forecasts.
Having sufficient working capital will help to avoid this deadly mistake in business…
Under estimating the sales cycle will impact on the businesses working capital requirement. Having insufficient working capital can result in the death of a business.
Cash and capital is the life-blood of business. A lack of cash will lead to the death of any business, so businesses must raise sufficient capital at the out-set. Also, updating business plans and cash flow forecasts, will ensure early identification of cash short-falls.
4. Overtrading can ‘kill a company‘
Overtrading is where a business engages in more business than can be supported by the market or by the funds or resources available to it. It is more often the case where a startup business simply runs out of cash.
This can happen where, although the business is profitable, the amounts being invoiced by the company, are not being collected fast enough. It is where the business is having to payout on wages and its suppliers, before it has collect the money from its customer sitting in the bank.
The only hope of survival for a business in this position, is to seek finance from a bank or another lender. However, an overdraft or other type of bank loan usually requires security, and where this is not available, the bank will probably not lend.
A solution for overtrading includes invoice financing…
The other solution to overtrading is to seek invoice financing or factoring. This involves receiving the funds from a factoring company (sometimes up to 85% of the invoiced amount) almost immediately after the invoice has been raised.
At the outset, keep an eye on costs and be careful not to hire too quickly. You’ll soon find that your costs, your wages bill, along with the consequential employment taxes, will very quickly run-down your cash balance.
5. Know your breakeven point
A company’s break-even point is where the amount of net revenue (i.e. sales less cost of sales) is equal to its overhead expenses. Expenses that need to be covered by minimum sales, is what it costs to run the business.
Most entrepreneurs have no idea what their total expenses are, let alone what their businesses break-even point is. Knowing how much it costs to keep your doors open, even where no sales are made, is a good starting point.
Business breakeven point is calculated by totalling the businesses costs and expenses that not directly related to making a sale. Divide this number by 365 days; you now have your daily running cost.
By also knowing your gross profit margin, this number will help you to focus on how much revenue you need to collect on a daily basis. Failure to do so could lead to the death of your business.
6. Lack of delegation
Entrepreneurs, and especially new entrepreneurs find it hard to delegate. Most business owners fear that an employee will never do as good a job as they will. To avoid falling into this deadly trap, at the outset prepare an organisational chart with detailed positions within the company.
Make sure you have a structure from the beginning. Even if it is you as the business owner who is having to do a number of the positions. Later on, as you expand, this will help with employing new people and delegation.
Having an organisational chart will also help with business structure and with lines of control. Staff will know what they are responsible for doing, plus there will be a clear reporting structure to for them to work with.
One of the ten deadly mistakes of entrepreneurship is common amongst many entrepreneurs: A lack of “The Art of Delegation“. Entrepreneurs must learn to delegate for their business to thrive
This chart along with job descriptions will ensure you hire the right people. Without this you will struggle to know who to hire. Hiring the wrong people can lead to catastrophe and could even kill your business.
A part of your organisational chart should include a clear vision. Having a mission statement and imparting it to your staff is key to having a successful business. A business that survives and thrives.
Your company’s mission statement should embody your core values. Your employees should reflect these core values and they should be proud to deliver your mission.
7. Stock control and monitoring
Unfortunately we live in a society where we cannot trust everyone. For some staff, where they are given an opportunity to steal, they will. Don’t give them the opportunity in the first place and put controls and checks in place to prevent it.
The loss of stock or where staff do work on the side at your expense, will cost your business. I learnt this the hard way and it ultimately cost me significant business.
The opportunity was there for the manager to steal and to steal clients. When it was found out, he had to go as a result of a long drawn out HR process.
He left along with his step son, who was the top seller of the business.
Had I not allowed the stealing in the first place, the outcome may have been different.
8. Not having sufficient critical illness or income protection in place
We all feel that we are invincible, It’s never going to happen to us. Well let me tell you…it does. Having gone through cancer and at a critical stage of my business, this caused huge problems. These things never happen at a good time and if you don’t have cover in place, your business could be in trouble.
Your business may need a capital injection if you are taken seriously ill or have a serious accident. What would happen to your business if you were to be in hospital for six months?
An insurance payout in these circumstances will enable the business to afford to take someone on to run the business in your absence.
Having the right level of cover may be the difference between success and failure for your business. Having an accident or being taken ill in this way could be one of the ten deadly mistakes where your business will not survive.
9. Back up plan and disaster recovery
Having a sound back up system could save your business in the event of a disaster. This doesn’t only apply to computer data back ups either.
You should have in place a good disaster recovery plan, which in part includes a good insurance policy.
The statistics show that not many businesses recover from a major fire. Most don’t survive and end up going into liquidation. So make sure you have a recovery plan in place for this and other potential catastrophic events, like a flood.
I have also had a business which suffered a major flood. It was when I ran my accounting practice where all my client records where kept in the basement.
Of course this is where the flood hit the worst and all client records got flooded. Fortunately, due to a good insurance policy and good record keeping my business survived the ordeal.
10. Not paying for the right advice and not getting a mentor
i. Pay for good professional advice
We can never be good at everything, so pay for the right advice. One of the ten deadly mistakes of entrepreneurship is not seeking advice at the right time. Or perhaps more importantly, not seeking the advice from the right people.
Good advice costs money, but bad advice usually costs more!
One area of business where good advice is crucial is accounting, legal and tax advice. Getting this wrong can become one of the 10 deadly mistakes of entrepreneurship. If you don’t get your taxes right, you could end up paying a lot more later, which will likely be compounded by penalties and interest.
Making sure you structure your business in the right way at the outset is important. Sometimes it can be too late to unravel what has been done if you don’t.
Seeking good legal advice when it comes to preparing your business terms and conditions could make a big difference in the future. Failure to get this right could be the death-nail of your business.
ii. Get a mentor
One benefit of having a mentor is in having a sounding board. The saying ‘it’s lonely at the top‘ is all too true. There will be many things you will not be able to discuss with your staff. Also there are certain things that your other-half will not necessarily understand. This is where a business mentor that is independent of your business is crucial.
Having belief in what you are doing, and having someone confirm this to you will be a big part of the battle to survive in business. The fear of failure and self destruction kills more companies than most other things.
In the Startup Genome Report it is recorded that more than 90% of startups fail, due primarily to self-destruction rather than competition. It also says that most encounter several near death experiences along the way. The same report discovered that 70% of startups scaled prematurely too.
There are probably more than ten deadly mistakes that an entrepreneur can make in business, but if you avoid these ones you stand a better chance of surviving. I prepared an Info-Graphic on the ten deadly mistakes of entrepreneurship below…please enjoy and feel free to comment below.
If you enjoyed reading this article on the Ten deadly mistakes of entrepreneurship, please share it on your favourite social media channel below. Thank you for reading inBusiness Blog.
Also, if you’d like to discuss the ten deadly mistakes of entrepreneurship on our business forum, you can do this here – Business Forum Discussions.