7 Business Mistakes You Can Avoid


Avoid Business Mistakes

In past 35 years, I have seen some fairly spectacular business mistakes made with varying degrees of consequence. Anything from bankruptcy and receivership to crippling debt, taking years to repay.

Others are just temporary setbacks, but all have the ability to cost you time and money and importantly: all are avoidable.

The following, may not be the most common mistakes, but they are my top Seven.

These mistakes can all be avoided and not making them, can not only save you money but maybe even a relationship.

1. Get Rich Quick mentality – no attention to detail and “deaf” to the market

Business is not a get rich quick scheme. It’s a hard slog. It’s a discipline like meditation and yoga; the more you practice the better you get.

Look at the Lifetime Value (LTV) of a customer, as opposed to “what is the maximum I can get out of them now, with minimum effort”. Build relationships and listen to your customers; they will tell you 90% of what you need to do to thrive in your business.

Imagine your business as a large company with different divisions. Such as Marketing, Production, Finance, etc… Now, take time out to work on each area to improve the efficiencies, systems, automation and performance of each ” division” on a regular cycle.

2. Not knowing or ignoring your financial performance – listen to your cash flow

Cash is King. If you are struggling to pay the wages or your suppliers, you are already in trouble. Take the time to sit down with your accountant and learn the basic financial “must knows” that you need to run your business:

  • The difference between “sales for the sake of sales” and “profitable sales”. You could be losing money chasing new sales.
  • The difference between:
    • a balance sheet (what you are owed, less what you owe = what you own),
    • a “profit and loss statement” with sales made on credit
    • a cash flow statement and forecast

Cash flow takes into account the income and outgoings shown in the profit and loss statement. This statement and the forecast are based on when you are likely to be paid or pay others, as well as balance sheet items that you may not see, such as GST liabilities and tax payments.

Understand your business’ Breakeven Point

Know your daily (trading/business day) cash churn rate. Take control of your Cash Flow so you know the average of what you need daily to keep the doors open.

Learn the cash flow Levers for your business and what changes you could negotiate to relieve the cash flow pressures. Some of the examples may include:

  • Negotiating extended credit term with suppliers, to match the credit terms extended to your customers
  • Taking a deposit on acceptance of an order
  • Using a monthly payment provider and offering a low-cost monthly payment option

3. Taking the foot off the “marketing pipeline” pedal when you start to win new business

We have all done it… When we start out in business, we concentrate our efforts on winning new clients and actually get quite good at driving the sales pipeline i.e. cultivating leads, meeting and presenting to clients, writing proposals and following up to close the deal.

The process can span weeks. But then, we win some work and all this activity stops. Eventually, we complete the work, smile and invoice, only to realise there is no more work coming through.

Quick!, crank up the sales pipeline engine again and repeat the cycle.

The trick is to stoke the sales pipeline fire weekly if not daily; neglect it to your own peril.

4. Neglecting the core business to chase new projects

It’s as if the odds are stacked against us; entrepreneurs love a challenge, bore easily and are filled with confidence they can succeed at everything they put their hand to. The reality is usually something quite different.

Even Richard Branson (Virgin Airlines, etc…) is said to have a success rate of 1/100 in new business he creates; and he is considered good at it!

The trouble with taking on new ventures is there is only 1 of you. You can quickly find yourself spread too thinly, neglecting the core business and using its cash flow to prop up the problem business.

5. Focusing on systems and procedures and ignoring sales & delivery

Systems are great and as you grow and take on staff, they become essential if you are going to maintain a constant product delivery for your customers.

The trick is, you need to keep this in balance with the other demands of the business. Letting this process fully consume your energies is akin to committing the sins of the points 3 & 4 above.

6. Concentration of customers in one sector or having all your eggs in one basket

Diversity in business is as important as diversity in your personal investment portfolio. Try to avoid dependence on one major client, a single industry, single sector, etc…

Think about:

  • the wholesalers specialising in servicing retailers in rural towns of the east coast and their cash flow after years of severe drought.
  • the business with 70-80% of its income coming from one client that goes into administration or does not renew its contract
  • the businesses serving the printing or postal industries, both of which have shrunk massively with the take up of the internet and online capabilities.

7. Over leveraging – too much debt

On oldie but a baddie.

Mismatching debt term with use term can be fatal. Ensure long term debt is matched with long term projects.

The thing about debt, it needs to be repaid. Commercial debt loan terms are relatively short at 5-10 years. You may have borrowed to access funds to buy a business but you may not necessarily be selling the business to access the funds you need to repay the debt.

This being the case, you will need to fund the loan repayments from after tax cash flow. Sure, you get a deduction for the interest, but not the principal repayments. This can be a massive strain on cash flow if you don’t factor it in properly.

Even though you may not have been planning to sell the business to repay this debt, that may be the outcome, along with your house because if you default, that’s what the bank will do.

I’m sure reading the above is not necessarily new information, but they are topics that are healthy to revisit periodically, to refresh our memory.

Others, we need to have tucked away in our subconscious, to protect us from ourselves and create a reality check and some balance when we get a bright idea.

Having said all that, use this information to your benefit and create even better outcomes as you progress through your business journey.

If any of the above has raised concerns or brought up issues that you would like to discuss in private, please do not hesitate to contact John Scott on 0433 402 005

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