Discussing business over a cup of coffee with one of my closest friends last week, we realised that almost a quarter of the people we knew running their own businesses have closed down.
Discussing business over a cup of coffee with one of my closest friends last week, we realised that almost a quarter of the people we knew running their own businesses have closed down.
We sat down and started analysing the reasons as to why small businesses are closing down in big numbers.
First of all, there is nothing as disappointing as a business owner witness all his hard work fail, and it looks like it has become the order of the day. It is common knowledge that all businesses face risks, and research has always indicated that newly opened small businesses close up within the first five years; and some of the reasons as to why these businesses close are financial crisis, bad credit and even personal stress, but fortunately think tanks have come up with ways to minimise the risks and even promote profit growth for new small businesses.
We all know that different businesses have different risks, it is therefore advised to always think of potential problems and risks that your specific business could face. Randy Park a Toronto based author and a speaker on small businesses, says that a business owner will always assume that what happened yesterday is what will happen tomorrow; but that is not the case and one needs to be clear on the risks affecting their business model and the key to minimising risks is foreseeing and preparing for them.
Before a person starts doing business, it is important that they obtain a solid business insurance policy or policies that cover all areas of the business. A small retail business needs to insure its inventory, business equipment, company property or company vehicles as well as maintain a workman’s compensation policy. Insurance does not reduce risk directly, but it does keep a small business from shouldering the entire financial burden associated with defective inventory or an injured employee and reduces the risk of the business folding.
A business owner should also avoid long-term commitments when starting a small business. Until the business is firmly established, long-term commitments such as mortgages and company car lease payments should be avoided at all cost.
One big mistake that some people have made is that they invested many personal assets when starting up a business. This is not advisable and one must try not to sign personal guarantees on business debts. You also have to make sure that your personal needs are taken care of first. Opening up a business might need you to get some money out of your personal savings and you might not have enough to pay for your own expenses. It might be wise to have something else on the side that generates income, such as a part time job just to make sure that you have enough money to live by.
Last but not least, any person opening a business must have an interest in their business in order to sell it. Research on the business and check if it sells in the area-conduct a feasibility study to know where your kind of business stands. While doing so, you can check out the competition and see how they are doing. You also need to know how a business is managed. Experience and intuition are keys to your success; you don’t have to have an MBA or a diploma in business management to know how to run your business. If you feel that you need help because it’s your first time, you can get a business consultant to help you.