NFIB

Avoid These Costly Small-Business Mistakes
12/ 05/ 2003

by Jeffrey Moses

Small and start-up businesses often have similar problems -- including cash flow maintenance, marketing, management, employee-relations, etc. Being aware of specific problems that many companies have can shine a spotlight on potential difficulties, before they get out of hand.

In an uncertain economy, when customers are cautious about spending and cash-flows are difficult to predict, certain types of mistakes can prove most damaging to a company's chances. These include:

Allowing costs to go unexamined. Cash flows may be uncertain from month to month, but fixed costs go on regardless of a company's income. Small business owners need to analyze every expense -- and reexamine them regularly. When an expense can be reduced or eliminated, action should be taken immediately. Even monthly costs should be examined to see how they could be reduced or eliminated. These include utilities, telephone expenses, Internet expenses, travel expenses, marketing costs, etc.

Neglecting employee concerns. Keep in mind that your workers may be burned out and stressed over working harder for smaller wages and reduced benefits. A small company's success is in direct proportion to the talent and dedication of its employees. To abuse the employer-employee relationship in any way undermines chances for growth not only by encouraging disloyalty among current employees, but also by making future hiring more difficult.

Not maintaining an adequate back-up or "emergency" fund. Every company needs residual cash to weather sudden temporary downturns in business. Avoid dipping into this fund for ongoing expenses.

Not establishing and maintaining an efficient collections system. These days, many of your credit or term customers might be slow in paying. Working with them may help create customer loyalty, but you should never jeopardize your company's cash flow in the process. Speak with your accountant or business adviser to see how far you can go with slow-payers.

Sticking with unproductive marketing activities. It's more important than ever to test every aspect of your marketing to determine which avenues are making money and which are losing. Almost every ad or ad campaign can be tested to see how much revenue it generates for each dollar spent.

Not keeping in close touch with changing expectations of customers. Are your prices too high in comparison with sales offered by competitors? Are you offering products that customers are deciding to do without when cutting back on their household or business purchases? Do you have a superior customer service department? These questions and others can help you reshape your operations and help you gear up for success.

Not evaluating new plans objectively. Don't become emotionally attached to new ideas and proceed without careful analysis. An uncertain economy is not the time to fund a major new project without thorough evaluation. Before committing time or funds to new product lines, services or even a new business, consult with financial specialists experienced in the field.

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