Are you killing your business? Mistake Three

Don’t be the reason your business fails. Over the next five weeks I will be sharing the most common mistakes that people make that kill their business.

MISTAKE 3 – Growing Too Quickly Before Your Model Is Proven

Typically, at the start, the owner’s passion and belief in the business is very high, and sales come in. So, they gear up by expanding staff and premises – only to have to cut back as the sales increase turned out to be just a blip.

Every business needs working capital and as the business increases so does the working capital requirement. So if cash is tied up in stock or in covering debtors that owe money on standard 30 day terms, then the company runs the risk of running out of cash. This is a well recognised phenomenon and for this very reason the Bank of England is expecting the business failure rate to increase as we come out of recession.

So make sure you plan for any expansion – often business owners fail to do this; they celebrate the increase in business and then blame the banks for pulling the plug just when things are picking up. The reality is you need to sit down with your Bank Manager and discuss the need for funding several months in advance to avoid any panic requests.

In addition if you don’t have the appropriate systems and procedures in place, you can end up being sucked into more and more areas as the business grows, meaning you spend more time working in the business and less time working on it.

Another issue can be a lack of knowledge about how to scale the business – in particular how to reach new customers and the systematic achievement of conversion rates. This can mean that sales come in “in fits and starts” making longer term growth planning more difficult.

About Hilary Briggs

A management consultant with over 15 years of industrial experience having held senior management positions at Rover Group, Whirlpool Corporation and The Laird Group plc. For the last 10 years, she’s worked with SME’s to improve their performance. Hilary is Managing Director of productivity specialists R2P Ltd.