5 fatal errors small businesses make – and how to avoid them!
Don’t be one of the four in 10 UK businesses to fail – set goals, clearly define your audience and get your cashflow in order
Going into business for yourself is a bold move. It takes a lot of courage to give up the security of a regular salary and strike out on your own.
Despite the challenges, people in the UK are becoming increasingly entrepreneurial. A record 5.5 million private sector businesses were in existence at the start of 2016, and the number of sole trader/self-employed businesses grew by 84,000.
Small businesses now make up at least 99% of the businesses in every main industry sector, according to official statistics.
But how much staying power do small businesses really have? Recent research shows that four out of 10 of the UK’s small businesses fail before they’ve been around for five years.
At first glance, this figure may be worrying for you as a business owner, or as someone thinking of going into business for yourself. After five years, you’ll probably amass significant amounts of stock, customers and loyal employees. If it all falls by the wayside, the effects can be devastating.
To avoid such outcomes, small business owners need to gain more understanding of the possible challenges that will lie in their way. In this article, we present five of the most common small business pitfalls, along with suggestions on how you can tackle them.
Planning and setting business goals
It might seem like a no-brainer, but many small businesses go off track because the people working together are not aligned on what they’re trying to achieve.
At the very least, you should define a simple strategy, share it with your team, and define goals and milestones for how you’re going to reach it.
You should revisit these on a regular basis to make sure everyone’s on track, and to make sure pressing issues get ironed out before they become problematic. At the minimum, your planning process should include a business plan, a financial plan and a marketing plan.
Defining your company’s target audience
No one can be all things to all people, and the same goes for small businesses. It’s worth taking the time to figure out your customer personas, what their problems are, and where you can find them.
It’s key to first understand the problems your business solves, then work out who is most likely to be affected by them. Then you can more easily tailor your marketing messages to speak to their particular needs.
Marketing your business effectively
Successful marketing strategies can take many forms, from traditional advertising to word of mouth referrals, to email campaigns or targeted ads on social media. But what all marketing strategies have in common is their importance for the success of your business.
The best type of marketing for your business depends on who your target audience is and where they can be found, along with your specific business needs. But don’t make the mistake of assuming customers will come to you; all businesses need marketing.
Taking advantage of new business technology
The digital world offers a wide range of useful tools to help you do better business. Even if you prefer old school traditional methods, it’s always worthwhile exploring some of the latest tools and techniques available.
From digital accounting and payments tools such as Xero and GoCardless, or customer relationship management software such as Zoho, to cloud platforms that manage all your social media marketing, such as Sprout Social – why not make your business life easier and let technology take the strain?
Maintaining healthy cash flow
We end our rundown with one of the biggest reasons why so many small businesses go under: cash flow problems caused by late paying customers.
According to the Zurich SME Risk Index study, the UK’s small businesses are owed an estimated £255bn in outstanding payments.
Bacs data also shows that 60% of SMEs have faced issues with overdue payments. Small businesses also waste a lot of time chasing late paying customers; leading to uncertainty and stress.
How to solve cash flow problems
To tackle late payments, there are a number of things you can do:
- Make the terms of payment clear from the very beginning.
- Don’t forget to invoice properly on completion of work.
- Make it easy for your customers to pay you.
- Let them choose their preferred payment method, and then set up a system where they can pay you instantly if they want to.
- Send out payment reminders before payment is due
- Make sure your bank information is displayed clearly and accurately on every invoice.
You can also encourage your customers to make automatic payments by direct debit. direct debit ensures no more missed payments and keeps your cash flow in good shape.
Online direct debit providers, such as GoCardless, use technology to level the playing field, offering even sole traders the benefits of access to direct debit.