An alarming 95% of businesses don’t make it beyond their fifth year despite having really innovative ideas. What differentiates the businesses that succeed and those that don’t? I think the ability to make a profit is a huge factor. Below I have shared some experiences on profit pitfalls that both the seasoned and new business owner should look out for. I don’t want to bore you with a lengthy article so I’ve split in into two parts and will publish Part 2 next week. Stay tuned!
1. Don’t commit too early to high recurring overheads
Most small business start off with definite ideas about how they want to spend their money but few are clear on how to MAKE it back. If you are new to business, one of the pitfalls to avoid is the leur of committing to ongoing expenses. These are the expenses you sign a contract for and cannot get out of without a penalty. This can be in the form of rent, staff cost, hire purchases, lease agreement etc. Before you commit to these items you need to have established some regular income that will cover their commitment. In fact have someone also sign a contract committing some income to you before your go committing to pay some one else. Your business will fail otherwise. This is probably the main cause of cash flow problems in new ventures, committing too soon to recurring cost. So ask yourself:
How much are you paying for rent/lease etc? Do you really need to?
Can you really afford to pay that extra person with you current level of activity?
2. Small business advertisement is overrated, oops I said it
How much did you pay for your advertisement in that paper or tv channel? Did you get any referrals from it? Are you monitoring the sources of your referrals or leads? I’m not saying that small businesses don’t need to advertise. We all need to be effectively marketing ourselves but it is how you choose to market your business that matters.
There are really cost effective ways of advertising these days. Work out what your target market and budget and direct your advertisement at them rather than just advertising for advertising sake. I see these high advertisement costs when preparing accounts and the owners always shake their heads when I asked how it went. You don’t have to fall into this trap!
3. Hate accounting? Learn it, love it and live it or get someone who does!
Accountants are here to stay, we are like marmite. You either love us or hate us but unlike marmite you really need to work with us to keep your businesses on the straight and narrow. I like to think of accounting as a tool for achieving my business goals and it is a very effective tool if you want to succeed. You don’t need to love numbers or accounting to use it in your business. It is just one of those things that you just have to get on with. It is a necessary evil if you want to see it that way. If you are currently struggling to make sense of your business’s numbers then take some time to learn more about accounting. It is a learn-able skill and there are many books out there that will equip you with the basics and the confidence to deal with your accountant. Accounting fees are high because it is a technical area and I believe because so many people hate it so much. Find a good accountant that really understands your business and consider having them on a retainer so that your accountants are constantly in the right. If you are still struggling with the cost of accounting services then see it as an investment which frees up more time for you to focus on selling and marketing your business – this is after all where the cash comes in.
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See you next week for the rest of the article.
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Do you want to use this article? You have my permission provided you include Griselda K. Togobo is the founder of AWOVI Consulting Ltd, a company devoted to increasing the success rate and profits of small businesses. The consulting and coaching practice is aimed at supporting small businesses develop and implement the programs and systems that will make their businesses profitable. AWOVI’s online portal is used to support and inspire entrepreneurs with advice, tools and success stories. Visit her blog at www.awovi.com
The illustration is provided courtesy of Noldyx Designs