There’s a lot riding on your shoulders when you set up a small business. Sometimes, the pressure of having to do everything yourself can result in mistakes, jeopardising your success. Keep yourself on the right track by staying 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 will want to grab it. One way to do this is by hiring quickly. But, be cautious and evaluate a prospective employee’s skill set before you hire.
- For example, the owner of a small digital media agency tests graphic designer’s creativity before hiring them. This involves assigning them a project using software like Photoshop and Corel Draw. The owner 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 to attract new talent to your firm. 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.
Making big purchases too soon
- Avoid buying 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 many commercial ovens at its 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 based only on seasonal factors. A bakery, for example, is likely to sell more cakes and puddings during Christmas. Instead of purchasing more equipment, it can hire people to work a second shift to take advantage of the opportunity. This will also prevent 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 choosing between what to invest more in—your office or your equipment. Don’t make this decision without factoring in the nature of your business.
- 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.
- You will have to work out how much you will spend on assets like machines and on decorating your office. Overspending on one can impact your productivity and efficiency.
Not recognising the value of debts and loans:
- Businesses, like individuals, must maintain a credit score, so you don’t have to rely only on investors to access finance. Loans can help you achieve your objectives.
- 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, and 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 bringing in an investor or partner on board, consider other forms of finance such as business loans. This helps you meet your goals and build your credit history without giving up control of your firm.
- 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 in your favour.
Not planning for tax obligations:
- Most small business owners meet with tax planners before it is time to file taxes. Rather than following this practice, 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 no time to remedy the situation.
- Your business assets are eligible for 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 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 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 risks. 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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