Implementing actionable and realistic business plans can increase the lifespan of any SME.
According to business strategists, the survival of new companies depends on some essential factors. It’s easy for these experts to predict the outcome of any business during their teething periods. Don’t forget that developed countries rely on the SME business sector to reduce unemployment rates. Without a viable small and medium business sector, the size of an economy might shrink. In this article, we shall analyze the cause of SMEs’ failures and suggest ways to prevent a disaster.
Failure to Plan
While listening to the challenges and success stories of many entrepreneurs, I could identify a common factor for their growth. They developed realistic business plans that were guided with the growth mindset. Planning and implementation are different, but both phases require unique strategies. Without conducting an accurate market survey, there will be no information to plan the business. Being a small business idea doesn’t reduce the risk of failure. Instead, the correct implementation of a viable business plan must include some of these factors:
- Highlight the mission and vision of your SME business.
- Develop financial, sales and marketing strategies
- Monitor competitors’ activities, and grab a market share
- Conduct market surveys, and be active in your business niche
- Forecasts your revenue, prepare budgets, balance sheet, and reduce expenditure
- Identifying your competitor’s plans by speaking with them at networking events
Too Much Focus on Accelerated Growth
Learning from mistakes is more important than focusing on accelerated business growth. According to management accountants, every new business has a break-even period. It’s the phase where the revenue is more significant than your business’ running costs and loans. By trying to grow too fast, an SME business owner might be consumed by unnecessary risks. However, numbers don’t tell lies, and the company’s financial statement often indicates its performance.
One of the advantages of entrepreneurship is learning to improve your business from every experience. Growth often takes time, and it’s realistic to accomplish your corporate targets without using shortcuts.
Usually, the board of directors applies their wealth of experience to the growth of companies. They make realistic projections, develop strategies and plan the smooth running of most organizations. When SMEs fail, the first area that consultants probe is the management style. Without purposeful management and leadership, the organization will fall short of its key deliverables.
Even smart people with natural leadership skills try to develop their ideas. Also, employees will suffer from poor morale if their organization has an ineffective management culture. This condition often affects the productivity of SME businesses and leads to business failure. Additionally, reckless financial strategies and the lack of technological tools in the workplace are some elements of incompetent management.
A Poor Bookkeeping Culture
Many business experts understand the importance of using accounting software. You could experience a plethora of fraudulent transactions without proper accounting procedures. Usually, SMEs businesses thrive when the owners track financial activities and reduce wastefulness. The process of selling your products and services should be executed with less human interferences.
As a business analyst, I recommend cloud-based accounting tools for start-ups and existing businesses. With these accounting software applications, entrepreneurs can track financial activities without going to their offices.
Too Much Account Receivables
Offering your products and services on credit terms is not the right way to attract customers. Also, this practice is a weak organization culture for new businesses and SMEs. Usually, clients take undue advantages of companies that depend on credit terms. When your profit and loss statements show more account receivable, it indicates a journey of business failure. It’s better to negotiate favourable terms like upfront payments and bank guarantees when dealing with clients.