Small Business Survival
Introduction
Too many small firms collapse within a few years, sometimes just a few months, of starting up. Yet many of these businesses could have been saved if only their owners had spotted the first signs of serious trouble at an early stage and acted to eliminate them. Do not be intimidated by the reality of high rates of small business failure (about 85% of all new businesses go under within five years of their inception), but do recognise that all businesses have to overcome real problems in order to avoid failure in the early stages.
Myths and realities about small business management
People who have never done it themselves cannot fully appreciate the problems attached to running one's own firm. Friends and relatives naively assume that because you own a business you are:
(a)Loaded with money
(b)Spend most of your time on holiday
(c)That when you do occasionally visit the premises, you do very little more than give orders to employees
But no matter how industrious, thrifty and self-disciplined you are, you might still have a firm that under-performing and the realisation that the enterprise isn't earning you a proper living can be profoundly worrying.
Outsiders are often blissfully unaware of how much effort you actually put into building up the firm. They forget how you worked in the evenings, at weekends and on bank holidays and how you still thought constantly about the business on your days off!
Where is your business headed?
Do not be too disappointed if these comments sound disagreeably familiar: low productivity is not unusual in small firms and if your last quarter's returns were poor you are not alone. Yet no matter how bleak your current prospects appear there are still numerous measures you can initiate to increase your profitability. Many people have been down this road before you.
Be realistic about your prospects
When you launched your firm you probably read one of the innumerable books currently available on how to set up and run a small business. Some of these texts are excessively - even childishly - optimistic and either omits all reference to the stark and sometimes unpleasant realities of potential business collapse, or fail to discuss them adequately. They do not tell you about the real problems of small business management:
* Unpaid debts
* Angry creditors
* Threats of legal action
* Lazy and incompetent workers
* The loss of important customers
* Insurance policies that turn out to be useless
* Inadequate premises
* rent reviews that cripple your operation
Possibly you initiated the enterprise at a time which with the benefit of hindsight guaranteed it could not be wholly successful. Now, you have to rethink fundamentally the entire situation and analyse, honestly and comprehensively, your firm's weaknesses and your personal contributions to its inadequacies.
Analysing problems
There are, in fact, a small handful of key variables that consistently cause businesses to falter. Your business might:
* be in the wrong place
* offer the wrong product to the market
* collect and base decisions on the wrong information
* employ the wrong people
* be too lax in controlling the credit allowed to customers
* cost too much, unnecessarily, to operate
Associated with these central difficulties is a whole series of other troublesome issues, resulting, perhaps, in shortages of cash, over-investment in land, buildings, machinery, furniture etc., excessively high levels of working capital, poor organisation and inefficient utilisation of staff.
Duplication of Work
Few people fully appreciate the extent of hidden costs of running a small business. You must be totally ruthless when curbing unnecessary expenditure. No private sector business can possibly survive in the long term if its day-to-day methods of operation are inefficient.
Problems beyond Control
Of course, certain problems are beyond your control - mainly because they originate externally. But you should still be able to monitor and quickly identify these events - if you cannot there is probably something wrong. You need to make things happen rather than sit back and wait for external events to sink your business.
The need for diversification
Ideally, you should have a variety of customers across many different industries (so that a depression in a single industry does not hit you too hard) and will offer differingcredit terms to various categories of customer according to their importance, reliability and how quickly they settle their bills. Diversification across markets is also useful for a small firm that has already captured a large part - perhaps the dominant part - of a small market segment which rivals have overlooked. To increase market share from 85% to 90% of existing market is considerably more difficult than increasing from a 3% share to a 15% share of an entirely new one.
Good credit control is essential if you are to diversify your credit arrangements.
Management Information Systems
An effective management information system (MIS) enables you to monitor costs and revenues, and forecast certain events likely to affect the business. They allow you to identify possibilities for improving efficiency, for introducing profitable new products and for entering new markets. If provides the informationnecessary for day to day control (ratios of stock to output, profit to working capital etc.).