No matter how many mentors and advisors you have, when you set up a small business, there’s a lot riding on your shoulders. Sometimes, the pressure of having to do everything yourself can result in mistakes. Often, these mistakes jeopardise your business’s success. Keep yourself on the right track by ensuring that you stay away from these bad business decisions.
Hiring too quickly and paying too much:
- When you see an opportunity for greater sales or higher business income, you are likely to want to prepare for it. One way to do this is by hiring quickly. But, it is important for you to be cautious and evaluate a prospective employee’s skill set before you hire.
- For example, a when the owner of a small digital media agency is hiring a graphic designer, he tests the designer’s creativity.
This involves assigning him a project using software like Photoshop and Corel Draw. He then assesses the designer’s skill before offering him a salary that matches the industry average.
- Sometimes, you may want to offer higher-than-average salaries. This can be to attract new staff members quickly or to draw talented employees to your firm. In this case, you must ensure that these salaries do not increase your fixed expenses to the degree that managing cash flow becomes difficult, else, you can take a business loan to help with the same.
Making big purchases too soon:
- Do not base your decision to buy costly machinery or equipment without comparing current sales with expected sales. It is better to make expensive purchases at the right time, or this will cost your business more than it benefits it.
- For example, a bakery will not need several commercial ovens at the time of launch. But, it should account for more ovens in the space that it rents. This makes it easier for the bakery to buy more ovens when sales shoot up and demand increases.
- Also, ensure that your sales trends are not only based on seasonal factors. A bakery, for example, is likely to sell more cakes and puddings during Christmas. Rather than purchasing more equipment, it can hire a second shift of workers to take advantage of such an opportunity. This will also help your business’ cash from being stuck in unused equipment in the long run.
Paying more for the office than the equipment or vice versa:
- Structuring your business’ priorities is important when it comes to choosing between what to invest more in—your office or your equipment. Don’t make this decision blindly! Factor in the nature of your business before you decide.
- A digital media company needs a comfortable office that creates the right work atmosphere for its employees. Apart from a well-equipped room for meetings with clients, it also needs décor that will create a lasting impression. But, when it comes to equipment, it needs sophisticated desktop computers only for its designers. It can provide ordinary laptops to other members of the staff.
- On the other hand, a bakery’s equipment has a huge bearing on its products. It needs the right kitchen tools apart from commercial bakery ovens, rotary ovens and so on. So, it should spend more on these machines rather than its interiors.
- It is important for you to figure out the percentage of what you will spend on assets like machines and what you spend on doing up your office space. Overspending on one over the other can impact your productivity and efficiency.
Not recognising the value of debts and loans:
- Just like individuals must maintain a credit score, businesses must too. So, you don’t have to rely only on investors to access finance. Loans can help you achieve your objectives as well.
- For example, if a bakery wants to diversify into chocolate making, it will have to hire a chocolatier, contact vendors for cocoa beans and cocoa solids, design packaging, as well as plan a marketing campaign to launch this new range. These are only a few of the many costs associated with diversification of this scale.
- Instead of only look at bringing in an investor or partner on board, it is important to consider other forms of finance such as business loans. Not only will this help you meet your goal without giving up control of your firm, it will also build your credit history.
- It is a common belief that taking credit is bad. But, taking credit such as a loan, and paying it off builds your credit history. So, if you urgently need funds in the future, you will have a strong credit history working in your favour.
Not planning for tax obligations:
- Most small business owners meet with tax planners right before it is time to file for taxes. Rather than following this practice, ensure that you meet with an expert several times a year. Maintaining business accounts every month will help you foresee how much tax you need to pay.
- This way you can handle your tax obligations in advance, instead of panicking in March, when you have hardly any time to remedy the situation.
- This is especially important, as your business assets are eligible various tax deductions. A bakery’s leased commercial ovens and rollers, for example, are operational expenses, and secure tax savings. Thus, planning for tax is as important as saving taxes.
Not being able to take advantage of busy seasons and sudden opportunities:
- If your business can gain due to seasonal shifts, you must have the infrastructure to be able to make the most of it. If you don’t plan for the spike in demand, you won’t be able to take advantage of busy seasons and translate sudden opportunities into higher sales.
- To do justice to seasonal demand, first, find out if you can afford to hire more or produce more.Look for creative ways of using internal resources. This is what will help you make the most of last-minute opportunities or busy seasons like festive seasons or sales.
- A digital advertising firm, for example, could get more projects during April, when companies have decided their budget for the year. Or, they could get more clients during November and December when the holiday season drives sales. If the firm is already using its resources at full capacity, it can hire freelancers or interns. It can also hire staff in anticipation of increased revenues, but this comes with certain risk. Instead, it can hire part-timers who could help complete the extra work.
- A bakery, on the other hand, will require more raw materials during busy seasons and may also want to hire a second shift of bakers. They could also do a short-term lease of an extra commercial oven.
Getting these six things right will help you steer your business in the right direction, and ensure that you’re on the growth path.
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