Starting a business is exciting, challenging and demanding work, but hopefully very rewarding. Unfortunately, many small businesses fail every year, and it can be devastating to go through the collapse of an endeavor that has cost you so much time, money and effort. It’s also hard for the people affected by the closure, your employees, creditors, suppliers and of course the families and friends involved. Often when things go wrong, it’s very far from the end of the world, in fact, businesses often grow and prosper after going through tough times. Failure is a learning process that can teach a business owner a lot about where the operation needs to change and how. On some occasions, however, a business can be severely affected by what has happened, and closure is almost inevitable. How can you prevent problems in your business, and if things do go wrong, what actions can you take that will positively affect the situation?
Preparation
Small business advisors, banks, government agencies; every outside influence on your business when you first start will emphasize the importance of your business plan. Careful, meticulous planning is the only way to reduce the likelihood of problems down the line effectively. Every area of your business, from marketing, expansion plans, supply chains, logistics, staffing, premises, legislation and taxation, to the fundamental viability of your central proposal, must be analyzed in detail. Every possible eventuality needs to be predicted and budgeted for, so don’t think for example that the chances are so slim you’d have a lightning strike it’s not worth putting up a lightning conductor. If you do get struck during a storm and the building and all its contents are destroyed, you’ll lose everything and that will be the end of your dream. The importance of careful planning can’t be emphasized too much, and if you run into problems down the line as a result of inadequate planning all you can do is learn from your mistake and move on.
The economy
When you plan for a new business, you go through a research process to assess the available market for your product or service. If the results are positive, you proceed into business on the basis that your research shows you have a sufficient potential market to make the business profitable. What your research can’t do is predict changes to your market that are outside your control. A sound knowledge of the state of the local, national and global economies will give you an indication of how markets are likely to perform, but in life things just happen with little or no warning. The crash of 2008 is a pertinent example. Economies were growing, the future looked bright, and suddenly everything was turned on its head and the future was looking very different. Many businesses suffered, and many people were forced out of business as a consequence of a global financial crisis over which the small business owner had no control whatsoever. There’s no surefire way of protecting yourself against events like this, but a global crisis is, thankfully, a rare occurrence.
Market changes
There are things you can do to insulate yourself from some of the effects of more moderate market changes:
- Ensure you have a contingency fund, or some form of financial buffer that will allow you to continue trading until the market has stabilized.
- Don’t rely on one major income source – if a key client goes out of business overnight, you need to have several others to plug the gap and have a strategy for recruiting new clients.
- Spread the supply network as much as possible. Just as with clients, if you are too reliant on one supplier and they disappear, you need to be able to generate sufficient revenues from products supplied by other sources to keep you solvent until a replacement for the failed supplier can be found.
- Don’t expand too quickly. Growth is a good thing, but don’t exceed your operating limits in an effort to grow too fast. Growth should be controlled and moderated if it is to be sustainable; if you expand too quickly, you leave yourself open to being vulnerable in terms of operating capital, investment liabilities and the increased expenditure on staffing.
- Keep on top of your game. When you are making profits, don’t rest on your laurels; keep looking for new opportunities, continually evaluate your marketing strategy and its effectiveness, and remain at the forefront of technological advancements and shifts in your market.
Legal difficulties
Your business should be adhering to all the relevant federal and state legislation that covers your sector and universal laws such as discrimination and occupational health. If you are complying with the laws as they affect you, this will prevent most sources of legal problems. There are still times when you might find yourself involved in a lawsuit of some kind, for example, a client who sues you because he wasn’t satisfied with the standard of the work you did, or a customer who gets injured in your store. First and foremost, engage suitably qualified legal representation, from a reputable firm like Hunter Street Chambers. Legal problems are not something that can be satisfactorily dealt with by the layperson, so refer to a specialist and be guided by their advice. If you do become involved in any kind of legal dispute, it’s best to avoid getting into arguments or confrontations with your opponent. Gather any evidence you have that will support your case and let your lawyers deal with the situation.
The business world is full of potential pitfalls and changes which you may have no control over. In order to survive and prosper, you need to be as prepared as possible for any eventuality. Meeting these issues head-on and dealing with them as soon as they arise will be the most effective way of minimizing any potential damage. Your business can be a source of fulfillment, achievement and financial rewards, so safeguard its future by ensuring yourself against any possible threats.
