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.
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:
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.
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:
Help to avoid the common mistakes that lead to failure with these ideas to keep your business moving in the right direction.