The first couple of years can be rough on a small business. One-third do not survive beyond their second year, according to the Small Business Administration (SBA). But, if you can hang on past year five, the survival rates improve. Want to be one of those survivors? Here are four ways to avoid a small business failure.
Develop Leadership Skills
Passion and talent are two great qualities to have when starting a business. But it takes leadership to sustain one. Business thinker and author, Erika Andersen, says successful entrepreneurs know they have two jobs—build the business and lead the people. She’s found that employees look for six characteristics before they decide whether to align around a leader.
Consider whether you exhibit these traits by asking yourself these questions:
- Far-sighted – Do you have a clear vision of the future and do you communicate that to your staff? Doing so will make sure everyone is working toward the same goal.
- Passionate – Do your employees know what you stand for and that you’ll stick to your guns even in rough times? Are you open to their questions and concerns?
- Courageous – Can you make necessary decisions even if you’re uncomfortable or it’s risky? And will you own those decisions, even if it turns out that you’re wrong?
- Wise – Can your team come to you for counsel because they know you’re reflective about important decisions and that you learn from your mistakes?
- Generous – Do you believe in your employees, provide balanced feedback, share credit, and teach what you know? If so, they can take on bigger roles in helping your business grow.
- Trustworthy – Does your team know you’ll do your best to tell them the truth and to keep confidences?
Focus on Profit
Some business owners think booming sales is a sure sign of success. It’s a good start, but the ultimate measure is profit. That’s what drives whether your business can grow. For example, your bakery may sell out of your world-famous glazed donuts by noon every day. But if you can’t manage inventory or labor costs, those expenses can wipe out any gains in sales revenue.
That’s why it’s important to have a solid financial plan. Start with revenue projections that include your assumptions on how many units you expect to sell and at what price. Then forecast expenses like the cost of goods sold, general administrative expenses, taxes, and labor costs. The difference is your projected income or profit.
There are a number of free templates that can help you organize this and other financial data into a spreadsheet so you can track it each month and adjust as needed. SCORE provides several downloadable finance templates including balance sheets, cash flow statements, and profit and loss projection. They even offer mentors to guide you through them. The Small Business Administration also provides resources to help you better understand your business’s financial wellbeing.
Owners wear many hats—inventory clerk, HR consultant, production supervisor, customer service rep, and sometimes repair technician. The problem is, very few have time to do it all. And you don’t have to. Try delegating specific tasks to employees. It gives them an opportunity to develop their skills and frees you to spend time on more strategic tasks that will grow your business.
Assess the skills of your staff members. Start with a smaller task and perform it alongside them. Once they are successful on their own, add another responsibility. A related idea is to outsource a responsibility, like your accounting function. It buys you expertise you many not have and can help you track expenses more effectively.
Market Your Business
You might have just the thing people need but if they don’t know about it, your business can’t survive. So be sure to promote it to the people most likely to benefit from what you provide.
Here are some low-cost, easy ways to promote your business:
- Get social – Get in the conversation with potential customers by creating a Facebook Business page. Facebook shows you how to start and what to do once you’re up and running.
- Leverage employees – Your staff is one of your best advertisements. They understand your product/service. So encourage them to spread the word. Give them the option to extend the “friends and family discount” to new customers they bring in.
- Local search – Search engines like Google let you advertise when people search on terms related to your business. You only pay when people click on your ad. You set the budget and they provide tracking to measure results. Here’s how to get started.
Help to avoid the common mistakes that lead to failure with these ideas to keep your business moving in the right direction.