Five steps to being a successful entrepreneur
Everyone knows that running a business can be tough. Every year more than 16,000 companies go bust, according to figures from the Insolvency Service, while plenty more have the plug pulled on them by owners who realise they are heading for financial problems.
The reality is there are plenty of potential pitfalls for the unwary that can send even the most promising enterprises into a tail spin. So what are the most common mistakes made by would-be entrepreneurs and how can you avoid ending up as just another statistic?
1. Come up with a good business idea
What product or service are you planning to offer and how does it differ from what's currently available? Are you sure there will be enough demand? You might love quirky garden gnomes, but do enough people share your passion to turn it into a viable business?
You need to carry out proper research – not rely on a straw poll of family or friends, who may be tempted to enthuse about your project out of misplaced loyalty. Gauge demand by looking at what's available in the marketplace and seeing how you can improve on these offerings.
Work out all the costs involved and predict the likely income. You only need watch an episode of Dragons' Den to realise how many would-be entrepreneurs overestimate sales and profits. Be realistic - otherwise your venture stands very little chance of success.
2. Get the finances right
To make a profit, your income must exceed your outgoings. This might seem obvious but a failure to keep control of costs is why many promising businesses fail, according to Emma Jones, author and founder of small business network Enterprise Nation.
"You need to keep your sales high and your costs low," she says. "It is a mistake to spend too much in the early days, such as on a big office, and not focusing enough on sales. You need to get your product out there to paying customers in order to get the money coming in."
Cashflow is the lifeblood of any business so you must keep on top of the situation. For example, if you normally give people 30 days in which to pay, then don't wait until 70 days have passed before chasing up the debt. Polite early reminders will help ensure you get paid.
3. Communicate with your customers
Your most important commodity is your customers. Ignore them and you are on the fast track to financial disaster. It takes far more effort – and money – to attract new customers to your product or service than it does to encourage sales from existing clients.
Treated well, they can provide valuable feedback on what they like and dislike about your product, as well as keeping you in touch with trends in the marketplace and potential rivals on the scene. If you don't take any notice of what your customers are saying, you are running the risk of letting arrogance undermine your business.
The good news is that it's never been easier – or cheaper – to keep your customers up to date with your business, thanks to social media sites such as Facebook, Twitter, LinkedIn and even YouTube, not to mention free blogging tools via the likes of WordPress and Blogger.
4. Don't put all your eggs in one basket
Do not make the potentially fatal mistake of going into partnership with someone – or something – too early, according to Jones, who advises would- be entrepreneurs to take their time making such decisions. Not only may the arrangement be financially damaging, it can also close the door to other, potentially more suitable companies or individuals.
"If you're working well with someone, it can be tempting to form a joint venture but you need to get to know people and businesses before you hire them, go into partnership, or give them an equity stake. These are big commitments, so take your time and make sure it's the right thing to do," she adds.
5. Have a business plan
A common misconception is that a business plan is just for start-ups. That's not the case. It's a crucial document to which entrepreneurs can constantly refer in order to keep track of their goals and objectives, and to formulate a vision for business growth.
In addition, you need to have a disaster-recovery procedure in place which sets out what you will do if you're hit by something unforeseen, such as a sudden downturn in revenues or your computer systems getting wiped out by a virus. For example, using a number of suppliers rather than relying on one is a sensible way to safeguard your business.
Generally speaking, insolvency is to businesses what bankruptcy is to individuals. A company is insolvent if the value of its assets is less than the amount of its liabilities, or it is unable to pay its liabilities (loan payments) as they fall due. It’s an offence for an insolvent company to keep trading, so the main options available to an insolvent company are: voluntary liquidation, compulsory liquidation, administration or a company voluntary arrangement.