Common SME Mistakes and How to Avoid Them

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You could be running ahead in your business or there may be some catching up to do. Regardless of your current situation, there are some basic things to look out for running small businesses well. Even as there are no thumb-rules, some general principles do hold. Businesses that tank often ignore these. This is despite smart entrepreneurs ready and working with products and services that have an effective demand.

Watch out and check yourself against the following five points. It could be a smart hedge against failure. Avoid the pits on the way to see your business alive and kicking. Read on!

Did you put your marketing and sales in with a first- things- first box along with the other essentials? 

It may be time to review your marketing and sales strategy especially if you believe that it’s a step that follows other important layouts that a business needs like infrastructure and staff. Entrepreneurs often treat marketing as secondary owing to many fallacies. One is the misplaced belief that great products and services find the customers on their own. There is a certain consumer outlook where lack of familiarity breeds indifference. You don’t want the customer to look over or around your stuff on the shelf. Alright, you do have a great team and a sticky product to boast of but why should you expect your customers to find it out or you? You did not leave the day job to make a product that only those who know you, know about!

Do reach out, meet people, understand their needs and tastes, finish the customer and market research and get going on the sales strategy and marketing from day one or just as you get the wake-up call. And be specific. Drop all the assumptions and general foggy notions that you may be holding. As an example, facebook is not the only medium to reach out. It’s likely that there are additional or more effective channels: virtual and physical platforms that can catch the potential consumer of your services.

Talk to entrepreneurs, get their experience and determine what advertising channels may give the best returns. Measuring costs and benefits across different advertising channels is something that should be inbuilt along your initial foray and must be relooked every now and then. Exercise your marketing options throughout the length of your working business. It’s essential to be calculative on this front.

Nothing personal, it’s the balance on your business sheet!

Over a period, the balance sheets of your business become increasingly significant. No matter what your personal credit history is, the worth of a business is what it looks on the paper. Factors such as debt servicing, payments history, length of work and effective use of debts tell the financers about your current value and thereby its future potential. Being a determinant of future cash flows, these are important and very much in your court to play a fair ball with.

The business credit score is the real story of your small business. It’s useful not just for leveraging funds in the future but to stay safe too if a foreclosure begins to flash up. It is what you control. The payment history and the debt utilization ratio are simple facets that you can manage for a proper business credit score.

The score is used in screening business financing for your work. Not just that -it is a public record as well! You can end up with less favourable offers or could be declined credit on net terms if your business credit score is low.

So be on top on all these numbers, such as your business credit card payment history- and screen it yourself periodically – to be in a good standing.

When to seek financing (and when not?)

So you are in a hard spot and failed to see that emergency coming! And need the cash to tide over? Not a pleasing situation to be in. You need not have waited this long to pull the emergency levers.

Knowing how Shylocks work in the small business domain helps. A panic rush for loans in an emergency has adverse trade offs for it comes at a higher interest that usually have a shorter payback time.

Emergencies apart, cash in hand allows you to pick your cherries when an opportunity knocks, bridge over flow gaps and swell your capital. All these need planning. Waiting until the last moment pushes up borrowing costs that can effectively throttle an already cash starved situation.

On the other hand , claims on a loan should not be made for the heck of it. Just before putting your signature on the dotted line but not earlier is the way to go. There are loan linked costs and fee. Usually it is good practice to keep the business credit line open through a business credit card. That way you pay interest on just the amount used. What’s more, you don’t scramble to put an application together when you need the funds.

Cash (flow) or Tosh!

You must watch the money flow for now and for the future – each with an eye at the same time!  This is necessary to not just deal with the momentary survival issues but also to understand your ability to meet fixed-cost obligations that are to follow.

Often, business owners who don’t face daily or weekly cash crunch overlook the fact that cash flow is one of the most consistently reliable markers of a business’s standing.

Leave the details and daily figures to your accountant if you please. However it is a huge mistake if you are not clear if the business cash flow is negative or bordering on that realm. Have the numbers, not just the clues.  You must read your income statement and balance sheet to understand your cash flows. Learn it if you aren’t familiar.

Don’t hang around like a gambler ( or do you have a casino?)

If you are sticking to a business or a part of it simply because you have put lot of time and effort into it, give space for a re-look. That is when your balance sheet is not very excitable.

The situations for success are varied and you must adapt. The sunk cost fallacy is about an idea that when we have put in a lot into something, we have to keep on pursuing it even when it is not working. That’s a gambler’s hope that keeps him putting yet more money on the losing table.  That’s why many investors and owners will not easily pull off a downsizing stock. Simply don’t wait too long if the fundamentals aren’t showing up.

Sometimes little tweaking also works when you have spent a lot of time developing a new product or service. Read the signals well and move on. You don’t have to stop only when you come to the end of the road. Many businesses sink for hanging around too long.  Mid-way you do know or will know your mistakes. And perhaps you can walk away or you can run.

If you do want to keep going and thrive, do not overlook these as too simple sounding. I am writing from experience as an advisor to a few startups. So do change what you can, accept what you can’t and the cash-flow is the wisdom that will allow you to know the difference between the two.

Anurag Rai Srivastava manages the Delhi based Oculus Consulting that delivers start-up guidance to micro and small businesses with a focus on digital infrastructure.

By Anurag Srivastava

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