Okay, let’s settle this. Nothing is faster than the speed of light.
There are many pitfalls in running a successful and sustainable business. You will make a few mistakes here and there. You will, if you don’t give in or give up, overcome and become better at running your business. There are however some business practices you may not recover from. And as much as possible, avoid them. They will kill your business if you do not take caution.
1. Unpaid invoices, unhealthy credit extensions
Entrepreneurs sometimes find themselves in situations where they have to carry out a service without being paid immediately or sell goods on credit. This is not a sustainable practice, especially if the other party is not trustworthy. As much as possible avoid selling your goods and services on credit. It will kill your business. Make it a business habit to earn at least 80 percent upfront. Cash is king in business. It is the blood that circulates through every part of your business and ensures you stay in business. If your customers do not pay you for your services, you will have a negative cash flow and an over-bloated account receivable. Account receivable is not cash. If you do not chase your debtors to pay you as quickly as possible, you will soon run out of cash. And if you run out of cash, you will not be able to meet your obligations to your employees, suppliers, landlord, etc. You will either need to raise money through equity or borrowing to inject cash into the business. This approach comes with its own complications. I understand some corporate organisations have pre-determined payment terms like 90 days, 120 days payment after contract execution. If the company you are dealing with has a reputation for not honouring contract agreement, please avoid them. They will remain in business, you will not.
2. High-interest rate
The best way to grow a business is through equity; using owner’s funding to run the business. As the business grows, you will need to inject more capital into the business. You can do this through equity or debt. Debt in itself is not a bad idea, what is bad about borrowing most times is the cost. At what interest rate are you borrowing? Borrowing from a friend or a family member without being charged interest is the perfect situation for an entrepreneur. When you find yourself in a situation where you have to take a loan with interest rate, look for the cheapest options. We are beginning to witness a plethora of loans from different financial institutions and from fintech companies, which is a good thing. The problem, however, is the cost. Some are lending at interest rates as high as 300 percent! That is a lot! Before you take a loan, ensure you learn about interest rates. If you borrow at a very high cost, you may end up eroding your profit. You will end up working for the financial institutions instead of growing your business.
Forget all lofty ideas, fancy mission and vision statements. The reason why your business is called business is because you have people buying your products. The reason why they buy from you and not the business next door is because they derive more satisfaction from your services. NEVER let a customer down by treating them badly or take them for granted. Do your best to ensure they remain the focus of your business. Anytime there is a complaint from a customer, treat it with utmost importance. No business is indispensable. If you treat your customers badly and they still buy from you, know that they do have an alternative yet. Once there is, you will not see them again. Most dissatisfied customers will not complain, they will simply stop patronising you. If a repeat customer suddenly stops buying from you, they may have taken their business somewhere else. Also, develop a process that deals with all customers complaints. If your business operation is still small, handle customer complaints and resolution personally. As you grow, employ someone whose main responsibility is to deal with customers complaint.
4. Pilfering employees
Every business runs the risk of hiring fraudulent employees who look for loopholes in the business to carry out nefarious acts. A number of businesses have gone into extinction because one or two employees are stealing from the business. This is common if you run a trading business- boutique, supermarkets, lounges and so on. As an entrepreneur, your first duty is to identify possible loopholes and plug them immediately. Have a system that constantly carries out regular audits on the business. Develop a means to track movements of cash and inventory in your business. A while back, a popular retail chain store in Nigeria, discovered that an employee brought in a POS terminal and used it to defraud the company for amount running into a hundred million Naira. She carried this out for more than a year. Imagine what this will do to a small business. Monitor your employee’s activities, monitor your inventory, and most especially monitor your cash flow.
5. Lack of financial discipline
Discipline is one of the most underrated habits in both life and business. It is the glue that holds every aspect of productivity together. Without discipline, you run the chance of losing everything you have worked for. In running your business, it is best that you separate your personal expenses from that of your business. Put yourself on salary. Don’t treat the business account as if it is your personal account. For accountability sake, ensure your accountant or a second director is aware of every spending your business makes. If you cannot hire an accountant as a permanent employee, engage one on a temporary term.
As much as possible, avoid the above situations. When it becomes inevitable that you find yourself in them, ensure you find ways to quickly get yourself out of them. Your goal is to build a business that becomes sustainable. The above will either kill your dream or make it stagnant. Develop a business model that takes all these into consideration and have ready answers to deal with them.
Temitope Adeyemo is the author of Young, Black and Successful and a banker. Follow him on Twitter @topeadeyemo