How long is a business day?

How long is a business day?

What is a business day and how long it lasts?

 

Business day definition: Any day or part of the day during which the business is officially being conducted.

Generally, all businesses, government bodies, organizations and other entities are open during the official business days. In the Western world, which includes Europe, North America, and Australia, a standard business day is an official day of work that consists of five out of the seven days in the week, typically Monday through Friday and excluding weekends and recognized holidays.

In some German-speaking countries, such as Austria, Germany, and Switzerland, the term “business day” may include Saturday or Sunday depending on the profession.

For example, if a business promises to respond to your query by the next business day, it means that they will return your call the following day unless it falls on Saturday, Sunday, or a recognized holiday. The term “business day” often applies to when packages are shipped as many couriers and shippers work the same business days as most of the companies.

 

How long is a business day?

 

The business day consists of business hours. So, the length of a business day will vary depending on the local definition of the workweek and the hours of working that it constitutes. While Monday through Friday with the exclusion of holidays is typical in the Western world, the hours may vary from four up to sixteen depending on several factors.

Eight hours, excluding the lunch hour, is considered the most common length for a business day. This means working 9 am to 6 pm, which is nine hours (in some countries this is 9 am to 5 pm – eight hours), but 12 pm to 1 pm is considered a lunch hour and not paid.

Of course, there are professions that operate 24/7, such as hospitals, hotels, government services such as police and fire departments, airports, gas stations, and more. Every day is considered a “business day” when it comes to these professions. The term is generally not used for professions that are open 24/7 to separate them from typically white-collar companies such as banks, accounting firms, and the like.

 

Read also: 55 Remarkably Simple And Crazy Powerful Quick Business Tips

 

The 40-Hour Work Week and 8 Hour Work Day

 

Nowadays the most common duration of a business day is 8 hours worldwide.

Near the turn of the 20th century, the United States government began to track the average working hours for those employed at factories and manufacturing facilities. It was determined that the typical employee was present for 100 hours. Changes were soon instituted over the following decades and on October 24th, 1940, the 40-hour-work week and 8-hour day became officially the standard practice in many industries which is still observed today.

The origins of what would be known as a typical business day began soon after the Civil War ended with the newly formed National Labor Union asking Congress to mandate the 8-hour work day. It did not pass, but labor reform continued through the decades. By 1869, President Ulysses S. Grant issued a proclamation that brought about the 40-hour workweek for government employees. But it was not until well into the 20th century that this standard was recognized for most industries.

 

Changes to the Business Day

 

Thanks to the introduction of the internet and concepts such as flextime, the standard business day has undergone some changes.

It is now typical for many employees to work before 9 am or after 5 pm, but still put in a 40-hour workweek or even more. Many surveys have discovered that a considerable number of executives and professionals work more than 40 hours per week, but many include answering emails or work from home as part of their employment.

While many changes have been considered to the business day, it still is the standard for many industries.

 

Business Days Vs Calendar Days

 

Business days are often opposed to Calendar days, which is the adjacent notion. However, it is important to make a clear distinction between these two in order to properly plan your life or business.

In short, the calendar day is every day including weekends and holidays. Thus, regardless the official status every day is considered a calendar day. Unlike business days, there is no gap between calendar days sequence, so all 365 days of the year are counted as calendar days with no exception.

A brief example: In a standard week, there are usually five business days and seven calendar days, so normally two weeks would mean ten business days and fourteen calendar days.

If you mess up business days with calendar days, this may result in negative outcomes, such as missing the deadlines or the important appointments. For this reason, it is always good to know what exactly a business day is and how it is different from a calendar day.

 

Read also: 14 Keys to Success for Small Business

 

Business days FAQ

 

Overall, business days cause frequent confusion among people. In order to answer your potential questions we provide a quick, but neatly to-the-point FAQ below so there is no need for you to search for this information elsewhere:

 

How many business/workdays are there in a year?

 

This may vary based on many factors including different countries and business sectors. In the most usual scenario (five-day workweek), there are around 250 business days in a single calendar year.

This average is valid for most of the countries. For example, in 2018 the number of standard business days per country is as follows:

US

UK

Canada

Australia

How many days in a work year?

 

The same as the number of business/work days in a calendar year – around 250.
The term “work year” automatically excludes weekends and public holidays and includes all business days of the calendar year.

 

How many weekends in a year?

 

Usually, around 104, as there are 52 weeks in a year and weekends are two days per week.

 

How many days in a year minus weekends?

 

As there are roughly 104 weekends per year, the number of days in a year minus weekends is around 260. However, if you want to know the number of business/working days per year then you need to exclude the public holidays too since they are not business days and not counted weekends – they are holidays.

 

How many business days in a month?

 

Except for February, which can be 28 or 29 days, all other months are 30 or 31 days. So, usually, there are between 20 to 23 business days in a month. However, public holidays and other non-working days may lower this number.

 

How many business days in a quarter?

 

There are 3 months in the quarter. Accordingly, in a standard case, there are between 60 to 69 business days in a quarter.

 

How many work hours in a year?

 

This again depends on the country and business sector but given there are 250 business days in a year in a standard eight-hour work format there are around 2000 work hours in a calendar year.

 

How many work weeks in a year?

 

The number of weeks is rather standard. There are 52 weeks in a year and the whole week holidays are extremely rare. Accordingly, there are 52 business weeks in a year. However, due to the holidays and other non-working days, some of these weeks are not full 5 workdays weeks.

 

Does Saturday/Sunday count as a business day?

 

Usually, it does not. However, depending on specific business sector or country it may count. For example, this can be observed when there is 24/7 working format in a certain type of business. Likewise, 24/7 format does not always mean that weekends are fully treated as standard business days. A specific type of business can be open on weekends but it usually still won’t count as a business day for formal purposes (for example for corporate email replies or other official communication).

 

Is Saturday a business day for banks?

 

This depends on a particular bank. However, even if a bank is open on Saturday the things you can do there can be limited. So, it is always a good idea to contact your bank directly regarding this matter.

 

Is Friday a business day?

 

Friday is usually an official business day in Europe, Australia, and Americas. However, it can also be a weekend in other parts of the world.

 

What are business days for shipping and mail?

 

Business days for shipping are usually the same as for any other purpose – Monday to Friday, weekends excluded. However, this might depend on the time of your order, courier and service type. Based on these factors business days for shipping can vary from 4 to 7 days per week.

 

When do business days start?

 

Business days usually start at 9:00 AM. This can be any time depending on the business though.

 

Further reading: Top Recycling Business Ideas and Best Green Opportunities

What is the Companies Act 2006?

What is the Companies Act 2006?

The Companies Act 2006

 

The Companies Act 2006 (“the Act”) is one of the UK’s largest pieces of legislation. The Act includes 1,300 sections and 16 schedules. It covers many facets of the running and structure of a company as well as corporate governance.

It can be a confusing piece of legislation to follow at times. So, it’s fair to say it doesn’t make for easy bedtime reading.

Well, unless you’re looking for something to send you to sleep.

But don’t let that put you off.

Once you’ve got your head around how to use the Act and its purpose, it can be a crucial reference tool for you.

The Act allows to easily check up on your rights and responsibilities as an employee or company director.

This article aims to provide an overview of the Act, its contents and key provisions that demonstrate its importance in today’s corporate and commercial sectors.

 

The contents of the Companies Act 2006

 

The Act is one of the longest pieces of legislation ever enacted in the UK. Thus, reading the Companies Act 2006 requires a little navigation.

Fortunately, it sounds more daunting than it is.

The Companies Act 2006 has 47 Parts; the 16 schedules are separate. Most Parts contain several chapters which serve as headings to narrow the scope of the provisions down into relevant sections. This is to enable users to navigate the Act as quickly and as smoothly as possible.

The most used Parts of the Act:

  • set out the requirements for forming a company;
  • regulate the conduct of company directors;
  • make provisions for the disclosure of business accounts, audits and executive remuneration packages and any bonuses and regulate against fraud.

 

 Purpose of the Companies Act 2006

 

The context of the Act demonstrates its importance. The Act came into force in 2006, amending and reinstating much of the Companies Act 1985. The final provisions of the Act came into force in October 2009, after eight years of consultation.

A lot has happened in business since 1985. So the legislation was in dire need of a makeover to appropriately regulate the current sector.

Law primarily reflects the times we live in, or at least it should. The legislation is redundant if it doesn’t do the job it’s designed for.

Thus, the Act updated and modernised much of the original enactments relating to all components of companies, organisations and other forms of business.

2006 was an unforgettable year for global business and not for reasons we’d like to remember. It was the beginning of the Global Financial Crisis (GFC).

Leading up to the GFC, it became apparent that company law and corporate governance regulations needed tightening up – a change that took over four years in the making and came a little too late.

The purpose of company law and corporate governance is to promote enterprise and stimulate investment.

If individuals are better financially protected by the law and there is more accountability for those engaging in foul play, more people are likely to invest. In turn, this encourages businesses to flourish.

The revisions also streamline the company formation process with clearly defined legal parameters and regulations.

 

The importance of the Companies Act 2006 in today’s commercial sector

 

While some of the tricky bits are better left to the lawyers, the Companies Act 2006 is now more reader friendly for non-legal persons and the general public than it’s ever been.

One of the main focuses of the legislatures was to create a statute that operated in favour of a transparent and integral business community.

Traditionally, the mission of any company is to maximise the profit and economic value of shares for holders and members.

Other objectives tend to be ancillary to this.

It is no longer practical or acceptable for businesses to operate with a single minded approach towards business. The Act aims to reflect a more modern business practice, that is, companies are now required to have a greater external awareness as well as internal focus to consider the impact of their conduct on employees, trade unions, and the environment. In many ways, this welcomed change has been a response to the multitude of court cases that have arisen over the years, as well as complaints from the business community, consequently concluding that companies and directors need to take a more responsible approach to the impact their decisions are having on the business as a whole.

 

Effect of the Companies Act 2006 on Company Directors

 

The Companies Act 2006 has made directors personally liable for gross misconduct in some circumstances, including liability for directors who misappropriated company funds, committed unlawful acts in commerce or who have generally abused their positions.

Before this development, company directors were more easily able to use the company as a shield to protect their wrongdoing and identity, and as such avoided responsibility for significant company losses that detrimentally affected employees, employee retirement schemes and company shareholders.

The new amendments better regulate and prevent such conduct.

Further, directors are now required to have all of their remuneration packages and any bonuses paid disclosed to an external body. The external body then can review payments at any time.

This procedure aims to stop directors paying themselves large bonuses without any connection to company performance.

Widening the scope of an individual director’s potential liability operates in the broader interests of the business community. It is the first time there has been a codification of company directors’ duties.

Directors’ duties are not as onerous as they seem to be. They consist of a general obligation of directors to act in the best interests of the company, in good faith and with reasonable care, skill, and diligence expected of a person carrying out the functions conducted by the director of the company.

The new amendments to the Act are welcomed changes for company law in the UK. Corporate responsibility and personal accountability for director misdemeanours are crucial in keeping business practices honest.

With that in mind, we can forgive the legislatures for creating an Act with 1,300 sections – even if it still makes for a difficult bedtime read.

 

You can access the full text of the Companies Act 2006 by following this link.

How to register a new company?

How to register a new company?

 

How to register a new company?

 

Note: This guide describes the process of UK limited company registration.

 

The countless number of companies are being registered globally every year. In the United Kingdom in the 12 months to the end of March 2017, there were 644,750 company registrations.

Registering as a company in the UK has never been so easy.

No paperwork, long waiting times or expensive fees.

There is no need for an accountant or lawyer for registering a company nowadays. Everybody (absolutely everyone in the world) can go online and register a UK limited company electronically in about 3 hours.

As company registration process is now super fast and simple, more and more people every day decide to incorporate.

The most popular corporate body in the UK is a private limited company. Since 2007, private limited companies have consistently accounted for over 96% of all corporate body types.

The major reason for this is that the Ltd perfectly meets the initial needs that new small and medium size businesses usually have. Limited companies provide protection to shareholders. They also provide access to all essential legal rights.

In this guide, we will walk you through the necessary steps for setting up a limited company in the UK. Moreover, we will describe every part of company registration process in detail. If you want to start your business journey with forming a UK company read on and see how quick and easy this can be.

 

Basically, in order to register a UK limited company you need the following:

  • An appropriate company name
  • UK address for the company
  • At least one director
  • At least one shareholder
  • SIC code (Standard industrial classification of economic activities) – this identifies what your company does

 

Let’s take a closer look at each step:

 

1. Do you need to register a company?

 

The mere fact that you run a business does not mean that you must form a company.

Depending on the circumstances operating as a sole trader can be a good option to the certain extent. However, there are specific differences between a limited company and sole trader that matter.

Usually, as your business grows you inevitably reach the point where you need to switch from sole trader to the limited company. Limited company registration, in this case, can be slightly different. You can read about the exact procedure in our previous article.

 

Related: How to Change from Sole Trader to Limited Company?

 

However, everything depends on your current position. If you feel like a limited company is the best option for you then it is a good idea to go ahead and register with Companies House.

2. Choose your company name

 

You need a unique name for your new UK limited company. This must be a name that has not been yet registered for another company.

However, this is not the only requirement for company names in the UK. For the successful company registration with Companies House, your new company name must meet specific requirements. Most of these requirements are generic, but it is a good thing to know them in advance. We suggest checking the full details of the acceptable company names before you start the company registration process.

 

Related: What Names Are Acceptable for UK Limited Companies?

 

On top of that, remember that a good company name is an invaluable asset. The great company name will always help you along the way.

 

Related: How to choose a great company name? (ranking table included)

 

As soon as you find the suitable company name you can check if it is available using our company name checker. This tool is harmonized with the Company House records and functions in real time. If your company name is available you can proceed and start forming your company right away.

Remember that you can use a different name for trading. Your trading name (also called business name) can be different from your registered company name.

Additionally, you need to take into account that you’ll need to register your trading name (business name) as a trade mark if you want to stop people from trading under your business name. You also can’t use another company’s trademark as your business name.

3. Company address

 

All UK companies must have an address in the UK. This is a mandatory requirement. You must provide the company address during the incorporation process. You need the company address for official communications, for example, letters from Companies House.

 

Below are the requirements for a UK company address:

  • It must be a physical existing address in the UK;
  • It must be in a country where you want to register a new company e.g. company registered in Scotland must have an address in Scotland;
  • You can use PO Box. However, you still need to provide a physical address and postcode.

 

If you want so, you can use your home address or even the address of the person who will be managing your Corporation Tax.

Remember, that your company address will be publicly available on the online register.

If you do not have an address in the UK or want to keep your home address private you can get UK address online here.

4. Appoint directors (and company secretaries)

 

UK limited companies must have minimum one director. Directors are legally bound to carry the load of running the company and ensuring company accounts/reports are accurately prepared.

The minimum allowed age for directors is 16. The director must not be disqualified.

Legal entity (another company) can be a director of UK limited company, but at least one of the company’s directors must be a person.

There is no requirement for directors to live in the UK (although companies still must have a UK registered office address).

Please note that directors’ names and addresses are also publicly available.

As for the company secretaries, there is no requirement to appoint them for a private limited company. But some companies appoint them to carry on some of the director’s responsibilities.

Even if there is an appointed company secretary, the directors are still legally responsible for the company.

If you register a company with us you can appoint the company director electronically during the company registration process.

5. Shares and Shareholders

 

Limited companies are usually limited by shares.

Shareholders hold the company shares and this allows them to control the company. The liability of each shareholder is limited to his/her shares in the company. This is exactly the way shares limit the responsibility of shareholders.

At least one shareholder must hold shares in the company limited by shares. This can be a director.

If there is only one shareholder, then he/she owns 100% of the company.

As for the maximum number of shareholders, there is no such limit currently in place.

You need to set the price of an individual share which can be any amount. There is no minimum share amount requirement for UK limited companies. Share amounts can be as low as £1 (by the way this is a popular choice and in most cases the reasonable amount to limit the shareholders’ liability).

During company registration process the information about the shares has to be provided. This is also known as “statement of capital”. The following information must be provided:

  • the number of shares, their types and value – known as the company’s ‘share capital’;
  • Shareholders (also known as ‘subscribers’ or ‘members’) details – their names and addresses.

 

You also need to set the class for shares. The class of the share defines the rights it gives to the shareholder. This is known as “prescribed particulars” and must specify:

  • the share of dividends it gets
  • share exchange (‘redeem’) details
  • vote details

6. Find your SIC code

 

Check what your SIC code is. SIC (Standard Industrial Classification of Economic Activities) code identifies what your company does. You can find the appropriate SIC code in the condensed version of the full list of codes provided by Companies House.

7. Memorandum and Articles of Association

 

Memorandum of association is a legal statement signed by all initial shareholders expressing their consent to register the company.

Articles of association are rules governing the process of running and operating the company. These rules are presented in a written form and agreed by the directors, the company secretary, and shareholders.

Both documents must be provided in order to register a limited company.

Usually, there is no need to draft these documents in a standard case. There is a memorandum of association template and model articles available for an immediate use. If you register your company with Mill you’ll have all these ready in our system for you. You can also draft your own articles of association, but if you do so you won’t be able to form your company online.

8. File the incorporation with Companies House

 

Once you have everything ready you can start the company registration process. This can be done in different ways:

  • You can register a new company online with Companies House. In this case, you must register a company that is limited by shares and uses standard articles of association.
  • You can register by post. This application takes between 8 to 10 days. There is also an option to register the company on the same day if you get your application to Companies House by 3 pm and pay £100. In this case, you must mark the envelope as “same day service” in the top left-hand corner.
  • You can register a new company online with us. This is the easiest option. You will get everything set up for you in our system and will be able to get your company registered with Companies House in just 3 hours (in most cases).

 

How much does it cost to set up a limited company?

The company registration cost depends on the method you choose:

  • Online company registration fee with Companies House is £12;
  • Company registration by post with Companies House costs £40 (You can pay this fee by cheque made out to Companies House);
  • Registering a company through our system costs £29 (Companies House fee is included).

 

9. Register for Corporation Tax

 

Once you have completed the company registration process you will receive the official “certificate of registration” (certificate of incorporation). This document is the proof that your company legally exists. It contains your official company number and date of incorporation.

After you company has been registered and is ready to trade you can register for corporation tax within 3 months of starting to do business. Starting to do business also includes buying, selling, advertising, renting a property and employing people. If you doubt whether you have started to do business or not you may consult this comprehensive resource to determine your position.

You can register for corporation tax online with HMRC.

10. Start trading with your newly registered company

 

Once you complete all mentioned steps you will have an officially registered UK company that is ready to trade.

We’ll be glad to hear your thoughts!
Please share them in the comments section below for us and our audience to read and benefit!

What is the company Annual Return (AR01 Form)?

What is the company Annual Return (AR01 Form)?

What is the Annual Return (AR01)?

 

Filing the annual return is a legal requirement in the UK.

If you are running a company in the UK, you must operate in accordance with the applicable legislation (e.g. Companies Act 2006). There are certain statutory annual requirements that you should comply with including:

  • Filing Annual Returns
  • Self-Assessment Tax Returns
  • Annual Accounts
  • Pay as you Earn (PAYE)
  • Corporation Tax
  • Quarterly VAT Returns

 

Of interest to this article is the annual return (AR01 form, part 24 of the Companies Act 2006).

Notably, from 30th June 2016, the name changed from annual returns to a confirmation statement. Nevertheless, there is no much change in substance. The phrase “annual return” is still widely used (so we will use both terms in this article).

 

The Meaning of Annual Return

 

An annual return is a statement that you file at the Companies House to confirm that the information that they hold about your company is correct.

You must file annual returns at least once every 12 months.

Failing to file the confirmation statement while your company is in operation is a criminal offense and entails serious consequences. So, if you fail to file the confirmation statement within the stipulated time, you may face one of the following actions depending on the case circumstances:

  1. Removal from the position of director of the company;
  2. Prosecution (if you fail to file a confirmation statement at all);
  3. Companies House may strike the company off the register of companies assuming that your company isn’t carrying on business or in operation. If this happens then your company will cease to exist and all its assets will become Crown property.

 

Filing Annual Return/Confirmation Statement

 

Confirmation Statements (Annual Return) should be filed online through the Companies House web filing service or by paper form which may be sent by post. In either case, you will need to fill form CS01 (previously form AR01).

However, the amount of fees is different; you will pay £40 if you file your company’s confirmation statement on paper and £13 if you file electronically. Most people prefer filing the confirmation statements through the online portal. You should note that you cannot use paper form to file confirmation statement for your company if:

  • The company is in the protected online filing scheme (PROOF)
  • You need to file form 363

 

Details that Must be Provided in a Confirmation Statement (Annual Return)

 

  • Company name and number
  • Registered office address
  • Made-up date of the return – date at which all information must be correct
  • Alternative inspection location (SAIL address), if you use one
  • Officers (directors and company secretary)
  • Persons with significant control (PSCs)

 

Responsibility for Filing Annual Return/Confirmation Statements

 

The legal responsibility for filing the confirmation statement (annual return) of a company lies with the directors. If you have a company secretary, you may delegate the responsibility to him or her but always have in mind that you are ultimately liable.

You must ensure that you file at least one confirmation statement every 12 months. However, you may file as many confirmation statements as you wish within the 12 months so long as you give an interval of 24 hours between any two consecutive confirmation statements. If you have just registered your company, you will have to wait for at least 48 hours before filing its first confirmation statement.

Although you are not required to pay more than once in a year even where you opt to file several confirmation statements, companies rarely file more than the mandatory one confirmation statement in a year-probably in the interest of time.

 

The Importance of the Annual Return/Confirmation Statement

 

While filing a confirmation statement is a statutory requirement, it is not meant to merely increase your responsibilities as a director. It serves several important functions including:

  • Keeping your company’s information on the official register up to date;
  • Improving the quality of information on the official register;
  • The fees paid when filing confirmation statements is an important source of revenue for the Companies House which needs money to maintain the register and to offer other services;

 

How does a Confirmation Statement (CS01 Form) Differ from an Annual Return (AR01 Form)

 

As noted above, confirmation statements replaced annual returns. This change took effect on 30th June 2016.

While there is no much difference, the following are worth noting:

Previously, the requirement was to include a full list of shareholders every three years. This is no longer a requirement with the confirmation statement. As a result, you avail the information to the Companies House whenever you want to ensure that your information is up to date and correct.

Moreover, now instead of having to provide a snapshot of your company data annually, you are only required to check and confirm that the information held by the Companies House is accurate and up to date. With the annual return, you were required to file within 28 days from the anniversary of the incorporation of your company. This period is now 14 days.

Finally, there is the introduction of the requirement to provide a list of people with significant control (PSC) at the time of filing your first confirmation statement.

For the official information on confirmation statements, click here.

 

Related: How to Change from Sole Trader to Limited Company?

 

We’ll be glad to hear your thoughts!
Please share them in the comments section below for us and our audience to read and benefit!

Why do Small Businesses Fail: Top 10 Reasons and Best 50 Solutions

Why do Small Businesses Fail: Top 10 Reasons and Best 50 Solutions

Why do small businesses fail?

 

The sad truth is that most small businesses will fail.

In most countries (including the US and UK), more than half of newly created enterprises fail within the first five years (business failure statistics according to OECD Entrepreneurship at a Glance Report 2016 and Eurostat).

 

EU Business Survival Rate

One, three and five-year survival rates of enterprises in EU (2014) © Eurostat

 

New business failure rates are high.

Small businesses around the world are failing for the same set of reasons, even as you read this article.

We think you’ll agree: that sounds pretty frightening for every (soon-to-be) entrepreneur.

 

Or does it?

 

Well, as it turns out, knowing the major small business failure reasons in advance, or at least sufficiently early, can be life-changing.

 

This in fact can save your new business from failure.

 

And this is exactly the rationale behind this comprehensive article.

 

Here, we outline 10 major small business failure reasons, and provide 50 actionable solutions against potential failure.

 

And the best part?

 

Most of them are ready to implement, starting now!

 

Ready?

 

So, what are the primary causes of business failure and what can you do about them?

 

Let’s dive straight in.

 

Sections:

 

  1. Low Sales
  2. Lack of Experience
  3. Insufficient Capital
  4. Poor Location
  5. Poor Inventory Management
  6. Over-Investment in Fixed Assets
  7. Poor Credit Arrangement Management
  8. Personal Use of Business Funds
  9. Unexpected Growth
  10. Competition

1. Low Sales

 

This is a catch-all for many small business failures.

So what’s the problem?

Pretty straightforward: low sales is probably the shortest way to business failure.

Obviously, there are some reasons behind low sales volume.

Sometimes this can be a poor marketing strategy, not enough spent on advertising, a complicated process for customers to purchase the product, low production rate, and so on.

One of the classic reasons for low sales is not enough funds being allocated to marketing. Too many businesses fail to put sufficient funds to adequately promote their products or services.

Needless to say, to avoid issues of low sales all aspects of marketing and manufacturing will have to be considered.

 

Solution 1.1: Proper planning =  Higher chances.

 

Let’s be honest, most of the sucesfful businesses are built on meticulous planning. Very seldom spontaneous projects turn to profitable businesses.

You’ve probably heard the advice a million times, but proper planning is indeed critical.

This perfectly applies to your sales.

Before acquiring the loan to start your business, it is important to predict the necessary amount of sales needed to sustain the company once the loan becomes due.

A similar planning is also required when you start a business with your own money.

When the projection is made, it is important to tailor everything else to match it (your expected burn rate, marketing, finances, etc.).

Although it is impossible to predict the exact sales volume, it is still wise to be prepared for the worst scenario.

 

Solution 1.2: Reinforce your sales & marketing techniques.

 

Here’s the point:

Attracting enough sales depends on how you are marketing the product or service.

Successful businesses constantly seek to run their marketing at full speed and convert as many leads as possible, often at an increasing pace.

Business milieu rarely forgives any slack. You probably won’t survive if you fall behind.

Yes, it maybe a little sad.

But it’s true.

 

So do not lag behind!

 

Rethink your sales & marketing. Clear them up of all garbage.

Unnecessary stuff slows you down while you barely notice this.

Try to identify the weakest parts of your marketing & sales process, which are holding you back and providing none or very limited results.

Once you know what they are, immediately get rid of them.

You may later substitute those parts with entirely new practices, methods, tactics, and strategies.

 

The whole idea here is to:

1. clear things up;

2. keep testing with existing and new material;

3. leave only those things that bring tangiable results;

4. Repeat 2 and 3.

 

Pro tip: Never stop testing. Try to beat your best methods, tactics, and strategies with the new even more effective ones.

 

 

Solution 1.3: Get maximum sales on each customer (probability of sale as high as 70%!).

 

Here’s the thing.

You probably already know that a new customer costs significantly more than existing customers.

Acquiring a new customer is anywhere from five to 25 times more expensive than retaining an existing one.

At the same time, according to Marketing Metrics there is only a 5-20% probability of selling to a new prospect, while chances of selling to an existing customer are between 60-70%.

 

Your existing customers are at least 3 time more likely to buy from you.

 

%

New Customer

%

Existing Customer

 

All you have to do is to take this chance.

We recommend starting with upselling and cross-selling to see if they work for you.

To get off the ground, you can check how other businesses are already using upsell/cross-sell to increase their revenue.

Not grabbing the chance to sell more to your existing customers is missing an opportunity.

 

And opportunities shouldn’t be missed.

 

Remember: lost opportunity harms your business and contributes to failure.

So, it’s important to tap into every opportunity that your existing customer base provides you.

If you already have a client database in place, why not use it to increase sales?

Here are some tips to help you leverage customer data.

 

Solution 1.4: Effective Pricing.

 

Underpricing?

 

Overpricing?

 

Those are questions that haunt many entrepreneurs.

 

Picture this:

The influence of pricing strategy on sales volume is tremendous.

 

Before we go any further, just check this out:

 

 

Impressive?

You bet it is!

 

Pricing is art. Pricing is science.

Right pricing is hard.

 

But one thing’s for sure:

Pricing always deserves a focused approach.

 

The right pricing strategy can enhance sales volumes, laying the foundation for a business that will prosper.

Get it wrong, and you may end up with problems that will drag down everything you’ve built.

So, it’s probably a good idea to review your pricing strategy.

Try out different pricing methods and techniques that are available to you.

Stick to what brings you more profit.

 

Read these articles on pricing and pricing psychology for further guidance:

 

Solution 1.5: Do not squeeze your marketing budget, unnecessarily.

 

Marketing is something everyone wants, but no one wants to pay for.

The key is to approach this issue in a slightly smarter way. Understand this, slashing your marketing budget without good reason means cutting off opportunities.

 

Unnecessary cuts of the marketing budget means cutting off the opportunities. Click To Tweet

 

 

Which is not to say that rationalizing a budget isn’t a good idea. But it’s not the marketing budget that should be cut, it is individual toxic marketing elements that must be out of it.

Those are two entirely different concepts.

 

Solution 1.6: Collect customer feedback and use it to increase sales.

 

This cannot be over-emphasized, since customer feedback is globally accepted as critical for business.

Customer feedback can help you in many ways by providing actionable insights to create a better customer experience. Tangible data from customers can be used to make better business decisions.

If utilized effectively, customer feedback will help increase sales.

Consider this, for a second:

 

  • Dissatisfied customers 4%
  • Customers who do not voice complaints 96%
  • Customers who will never come back 91%

 

Customer feedback is essential.

The constant dialogue with people for whom you have designed all you efforts looks just natural.

If you do not know where to start, try the five easy ways of collecting customer feedback from Salesforce and see how you can increase your sales with the newly acquired data.

 

Solution 1.7: Overdeliver.

 

Overdelivering is a part of the more general concept of exceeding customer expectations.

This is a powerful way of stable sales growth and is backed by human psychology (“happiness = reality – expectations” principle).

 

Happiness = reality – expectations Click To Tweet

 

An incredible experiment has been done on this by Elliot Aronson (University of Minnesota) and is available here if you want to explore this phenomenon further.

 

One thing is pretty clear: people (a.k.a. customers) like it when you exceed their expectations.

 

People (aka customers) like when you exceed their expectations. Click To Tweet

 

This works, and many businesses have successfully proved it. So, when your sales are floundering, try overdelivering.

Here is an excellent guide by Shopify on this topic. Start implementing it right away.

2. Lack of Experience

 

This is a generalization of sorts, but not having the experience of managing the grind of a small business is one of the primary reasons for failure.

Those who have the relevant experience usually understand the daily challenges that a small business faces. More importantly, they are more likely to spot potential trouble in time to make course corrections.

Of the small businesses that succeed, many are run by people with previous business experience (including failed business attempts), whether it was their own venture or assisting someone else with a startup.

 

What it means is this:

The more business experience you have, especially with running the daily operations, the more likely you are to succeed.

 

Which is not to say that you can’t hit the bullseye with your first try.

 

Well, that’s fair enough, but…

 

What specific options are available, for you to start and run a business with no prior experience?

 

Let’s take a closer look.

 

 

Solution 2.1: The easy way – start a business in a field that you already know.

 

This is a no-brainer.

The good business idea is not always something red-hot. So, do not torture yourself trying to come up with a revolutionary business idea.

There are always some business opportunities out there in almost every field (including yours). Most of them are pretty straightforward and time-tested.

You might just pick the one that looks most promising and closely related to your unique experience.

The next step would usually be validating the idea, and once that is done you are ready to initiate the process of setting up your business.

Starting your new business in a field that you are already well versed in will provide you with a nice starting boost and probably a valuable competitive advantage.

If you want to make your life easier and the probability of failure lower, then it is an excellent idea to start a business that suits your expertise.

 

 

Tip:

In case you can’t find a business idea that appropriately matches your experience you can try asking yourself the following simple questions to find one:

  • What is my biggest knowledge that makes me different from others?
  • What skills I have developed that no one or very few people can have?
  • What other experience I have that no one else have?
  • Can I use those experiences to build something special for other people?

 

This may seem elementary at first glance, but it is a powerful technique to understand your unique experiences and discover specific business opportunities that are open to you.

 

Pro tip: Used in conjunction with our Business Idea Ranking Table, this strategy can bring you fantastic results.

(For full guidance on how to use the Business Idea Ranking Table read our Ultimate Guide on How To Start a Business)

 

 

Solution 2.2: Learn as much as possible.

 

If you have already started a business or decided to go with a business idea in an industry that you have no previous experience of, then the best solution might be to study things and learn as you go.

Educate yourself as much as possible. Education has a positive correlation with business success rates.

 

Education has a positive correlation with business success rates. Click To Tweet

 

Research all ins and outs of your particular business field and the industry it’s part of.

Meet as many people as you can and read/listen as much as you can about the industry to have a broad understanding of the field and get up to speed quickly.

Apart from industry-specific insight, you also need general business knowledge to compensate for the lack of experience.

As a quick yet effective solution, we recommend reading the Personal MBA by Josh Kaufman.

 

 

Solution 2.3: Find a mentor.

 

A good mentor is an invaluable asset in business. Even the most successful entrepreneurs have had a mentor.

You might do as well.

Try to find a mentor for free on SCORE (US) or Mentorsme (UK). Alternatively, contact your local small business organizations for mentoring if your business is located elsewhere.

 

SCORE - Free Small Business Advice

SCORE is a non-profit organization dedicated to helping small businesses through education and mentorship.

.

3. Insufficient Capital

 

Believe it or not, but…

Perhaps the most common mistake that people make when starting up their small business is not having enough money on hand.

All too often, the money used to start the business does not last long enough for the company to make any profit.

This is particularly true when a large loan is used to get the business started.

With no/poor business planning/management it’s easy to run out of cash before the business starts bringing in enough revenue to keep it alive.

When a business runs out of cash, it rarely survives.

 

Solution 3.1: Get at least 25% plus capital before you start.

 

Every small business/startup ought to have sufficient capital to get the business through the first six months, and often longer, depending on the overheads that need to be paid.

So, calculate how much you will need to pay over six months (or a year) and add extra 25% for unexpected expenses.

More is better here. Cash is the lifeblood of business.

 

Cash is a lifeblood of business. Click To Tweet

 

 

The larger the capital you have available, the more time your business will have to prove itself and start generating revenue.

 

Solution 3.2: Understand your finances.

 

Seriously, do it now.

If you have already started your business, the sooner you understand your finances the better your off business will be.

Along with sufficient start-up capital, it’s pretty important to know what you are doing.

Depending upon your approach, your capital may drain away quickly or last longer.

Master this part, starting today.

Reading the Personal MBA by Josh Kaufman, the business book we have mentioned above should be a good way to start. The book has a chapter dedicated to Finance, which outlines the finance fundamentals quite comprehensively. You can just start right away with that.

Understanding the basics of finance before you actually start a business is essential.

It’s often not too late to catch up when you already have an operating business and it has not failed yet.

 

It is material to understand the basics of finance before you start a business. Click To Tweet

 

 

Solution 3.3: Watch your burn rate.

 

To get the most out of your available capital, it’s important to watch your burn rate.

Reliable and right accounting helps to effectively manage your finances and directly influences your use of funds.

The key is to reach a balanced rate of spending, according to a research paper titled Startup Survival and a Balanced ‘Burn Rate, co-authored by Wharton marketing professor Ron Berman and Pablo Hernandez.

To dig even deeper and get your burn rate balanced we recommend reading this.

 

Solution 3.4: Establish reliable accounting (bookkeeping) system.

 

Reliable and right accounting helps to effectively manage your finances and directly influences the usage of your funds.

No doubt about it.

Handling the accounting (bookkeeping) on your own (even for the first few months) might look like a great cost-saving idea, but it rarely is.

We believe that accounting (bookkeeping) can properly be managed only by professional accountants/bookkeepers.

Depending on your circumstances, you might hire an in-house accountant or outsource this. The point is, the accounting part of business needs to be consciously delegated.

With professionally managed accounting (bookkeeping), in the long run you’ll save time and money, and prevent ulcers.

Even more, you’ll make sure that finances flow in and out in a structured and transparent manner.

This is absolutely vital to help you make the right decisions.

For even more flawless accounting you can use accounting software.

Below are some, check them out:

Wave Accounting
QuickBooks Accounting Software
Xero Accounting Features
FreshBooks Cloud Accounting

 

Solution 3.5: Avoid bad and unfamiliar financial mechanisms.

 

Financial mechanisms look attractive. They lure business owners and seem to be a good option to solve any capital related troubles.

However, not all of them are innocuous.

Any money that has been provided in the form of a loan inevitably turns to debt.

The debt coupled with disadvantageous conditions may easily lead to disaster.

Bad and/or poorly arranged financial mechanisms must be avoided by all means.

The best solution is to refrain from the use of any financial mechanism unless you are 100% sure of what you are letting yourself in for.

 

4. Poor Location

 

Let’s face it.

Although this is not about all types of business, location is often something that makes or breaks your business.

 

Location is often something that makes or breaks your business. Click To Tweet

 

 

It’s all about the location, especially when your business caters to local customers.

You may have noticed that the good locations cost considerably more than out-of-the-way areas in your community.

This requires careful research on your part when it comes to choosing the right place for your business.

Prime real estate is expensive as it’s a key driver of foot traffic and sales.

If you have already chosen a not-so-good location or simply can’t afford a good one, then try to compensate for this weakness by adopting appropriate actions.

 

Solution 4.1: Choose the right location from the outset.

 

When choosing the location for your new business pay attention to the following factors:

  • Rental Cost
  • Foot Traffic
  • Convenience
  • Crime Rate in Neighborhood
  • Target Consumer

 

You need to be where your best customers can find you.

This means having an easily accessible location even during rush hour.

Plus, an area that generates a good amount of foot traffic and is considered safe by the public.

Falling in love with a particular place is easy. But do not get fooled by your emotions.

Ignoring the real world may lead to subsequent financial loss.

To avoid this scenario, we suggest using the simple ranking table.

People often overlook the power of ranking tables, whereas they are highly reliable bias filters. 🙂

Below is the very basic ranking table that you can use for the purpose of finding the best available location for your business:

 

Business Location Ranking Table

 

While using the table, it is mandatory to base your numbers on hard facts only.

Ignore your unfounded inner voice/opinion.

The solid facts and numbers are real.

Anything else that has no reasonable grounds is often just plain illusion.

Illusions do not interact with the real world.

 

Pro tip: To achieve the best results you can slightly modify the ranking table by including additional industry-specific criteria and/or sub-criteria.

 

 

Solution 4.2: Go online.

 

In a modern world online by default means great location. Having an awesome website/online presence in addition to your physical location is a beautiful thing.

 

Awesome online presence in addition to your physical business location is a beautiful thing. Click To Tweet

 

 

With each coming year, online matters more than anything that mattered before.

If your business suffers from poor location, going online can save you from probable failure.

Try to compensate (or complement) the drawbacks of your location with available online opportunities.

 

Want to know the best part?

According to a survey by Clutch, nearly half of small businesses in the US do not have a website!

Another research by Godaddy & Redshift Research shows that in Australia, Brazil, Canada, India, Turkey, United Kingdom, and United States 59% of small businesses don’t have a website. We assume that this number is somewhat equal or even higher in other countries.

Obviously, small businesses around the world aren’t fully utilizing the internet.

 

 Survey question: Does your company have a website?

  • Yes, since 2014 or earlier 41%
  • Yes, since 2015 13%
  • No, but plan to in 2016 17%
  • No, but likely in 2017 or later 7%
  • No, unlikely in future 12%
  • No, neither likely nor unlikely in future 10%

Data source: Clutch

Some of the respondents are your competitors.

Needless to say, even a basic website means a quick win over at least part of your competition.

The best thing you can do today is to create a website (if you still do not have one). The rest will follow.

Just make sure that you constantly keep working on your website/online presence and that you devote the time, effort and budget for this to start bringing results.

 

Solution 4.3: Maximize your signage.

 

According to International Sign Association – Your sign is your voice on the street.

Just imagine:

The powerful marketing tool working for you 24 hours a day, 7 days a week, 365 days a year.

 

Did you know that…

Only 1% of first-time customers come in because of your TV ad and 50% come in because of your sign?

 First-time customers coming in because of:

 

 

%

Sign

%

Word of mouth

%

Newspaper, Yellow Pages & Radio

%

TV ad

 

The number of exposures that a good signage can bring is insane.

What we also like about the signage is the durability. A one-time investment made in a proper signage that requires no further effort from your side can deliver years of non-stop marketing.

Do not underestimate the power of signage. Get the most out of it.

 

 

Create your signage based on the following:

  1. Compelling color
  2. Contrast for readability
  3. Size

 

 

For further guidance on signage and its economic value, see ISA and a handbook on how on-premise signs help small businesses tap into a hidden profit center by New York Small Business Development Center.

 

Solution 4.4: Understand if your location is indeed bad.

 

Sometimes, when your business is not performing well enough, you might see the location as the number one reason.

However, this might be a hasty conclusion.

Before making this kind of verdict, reanalyze your business performance.

First, try to push harder with your marketing channels and other available options to improve the business results.

Try to clear things up and see if your location is actually what is holding you back.

Nine times out of ten you will realize that there are untapped opportunities that you did not use previously.

It’s helpful to get customer feedback while running your marketing at full speed. Survey your existing clients to get to know what they think about your location.

In case it becomes apparent that your business location is doubtlessly wrong and there is nothing you can do about it – move to the Solution 4.5.

 

Solution 4.5: Change your location.

 

Sometimes, the business location is chosen so badly that spending extra energy on it makes no sense. So, if none of the methods listed above improve your business results – change your location.

Do not throw good money after bad, and do avoid a widespread escalation of commitment pattern.

5. Poor Inventory Management

 

Let us be brutally frank:

Too many businesses either overstock on products that do not sell or do not have the products that are selling.

The good news is, thanks to new methods of inventory management, you can significantly improve your systems and keep track of what you sell virtually in real time.

So let’s get down to it.

 

Solution 5.1: Set up your inventory tracking system at the outsetfrom the start, and check it daily to see what is moving and what isn’t.

 

By taking a few minutes out of your day to keep track of the inventory, you can increase your sales and stop wasting money on stocking items that sit on the shelves.

The successful businesses take inventory management seriously.

A properly set up and regularly monitored inventory management system positively influences the business.

Being systematic is important to ensure that the process is uninterrupted and under constant control.

 

Solution 5.2: Test and improve.

 

Even if you have some inventory management system in place, it’s still a requirement to maximize its efficiency by researching and testing new methods continually.

Some approaches may seem good at first glance, but they won’t necessarily work for you.

So, you basically need to try things out to see how they work for your business.

Find something that seems a likely fit, stick to it and keep improving it on a constant basis.

Once it has proved to be successful, try to automate the whole inventory management process.

To start, you can check these 3 popular inventory management techniques explained by Fishbowl:

 

 

…and this infographic from Tradegecko:

 

Inventory Management Techniques

 

Solution 5.3: Automate.

 

Once the successful systems have been created, try to automate them as much as possible.

This will provide you with many added benefits including speed, real-time analytics, low costs and fewer manual errors.

Automation can be successfully achieved with inventory management software, so let’s move to the next solution.

 

Solution 5.4: Use inventory management software.

 

Consider using inventory management software for automation, higher performance and faster growth.

If chosen carefully and correctly, good inventory management software can help you in many different ways including saving time, selling more and providing better control over the whole process.

There are many online inventory management solutions out there. Choosing the right one is again a matter of testing.

To start, you can check these online solutions to see if they work for you:

Tradegecko
Unleashed
Megaventory

Solution 5.5: Hire inventory control personnel.

 

If your business is too dependent on inventory management, then it can be a good idea to experiment with hiring specialized inventory control personnel.

This might look like an unnecessary cost at first glance, but investing in your inventory management team may prove itself in the long run.

 

Solution 5.6: Make inventory checks more frequent.

 

When you experience difficulties with inventory management, then it makes sense to make inventory checks more frequent.

This will help you to anticipate and detect problems faster and cure them accordingly.

6. Over-Investment in Fixed Assets

 

By investing too much in fixed assets, you lack the flexibility to make the necessary changes as your company grows.

Fixed assets need to be rigorously researched in terms of what is necessary to invest in and not spend anything more so that you do not overcommit.

There are many aspects of running a business that require having the funds available to make necessary changes. Putting too much into fixed assets compromises your control over your finances and exposes you to greater risk.

 

Solution 6.1: Understand your objectives.

 

Investment in fixed assets should be laser focused on your business goals.

Unnecessary purchases are not something that a truly promising business should tolerate.

Invest in a fixed asset only after you fully understand your objectives.

Make sure you have this matter covered in your business plan (this involves an in-depth research on the topic before you make the actual investment).

 

Solution 6.2: Get (expert) advice.

 

Refer this question to your business mentor if you have one, or alternatively try to speak to someone with practical industry experience.

In the real business world, lots of things cannot reasonably be foreseen or predicted before you actually dive in.

That is where people with relevant experience can help. They can provide you with helpful insights on industry-specific fixed assets.

It’s very easy and typical for a small business to fail for this reason. Thus, the external point of view on fixed assets is often critical for building a successful business. If done right this will save you from failure or at least mitigate the business failure risks.

Generally, the value of unbiased business advice is often discounted by business owners.

It’s a fact that you never know what kind of information you’ll get from others until you go and ask them.

Just take this as some sort of competitive advantage.

Go and ask what people know and think. Then simply use the information you get for the benefit of your business.

 

Pro tip: Filter any information you get from people, including your highly-trusted sources. Always distil the information through your innate common sense, intelligence, knowledge, and personal experience.

The business and industry knowledge that you’ve possibly managed to acquire already comes to your help here.

If have no proper or prior knowledge, then refer to the solutions provided in the first section of this article (Lack of Experience).

 

Pro tip 2: Do not limit your sources only to people you know in real life. Leverage the power of online communities. Ask questions on Reddit and Quora and get to know what a broader audience thinks.

 

Remember to be highly specific to get the useful feedback.

Include as many details as possible in your questions. Broad messages are likely to bring similarly vague and general comments that are usually not helpful.

 

Solution 6.3: Invest in innovative and latter-day assets.

 

Fixed assets can be different.

Time flies, and often the best thing that was out there a month ago, can be already outdated today.

So, try to come up with the most up-to-date, long-lasting, efficient and flexible fixed assets. Along with cost also look for durability, quality, liquidity and other relevant factors. Invest some extra resources now (such as more research and time) to realize long-term benefits.

Consider different alternatives and try to pick the best.

Every right decision you take today keeps saving you pennies in the long run.

The small things tend to accumulate over time.

So, this usually translates into higher winnings with the passage of time.

 

Small things tend to accumulate over time. Click To Tweet

 

Solution 6.4: Invest in liquid fixed assets.

 

You must admit the probability of things going wrong.

At some point, you might want to sell your fixed assets for any reason.

So, it makes sense to invest in the most liquid assets that are available on the market at the time of purchase.

This will make your life a lot easier if something goes wrong, and it can help to redeem your business from potential failure.

 

Solution 6.5: Stick to your business plan

 

A clear-cut business plan shall cover the fixed assets part.

If you don’t have a business plan, then read our article on How to Start a Business to write a good one.

Once you have a reliable business plan make sure you actually stick to it.

This will help you to stay within the reasonably defined investment limits.

7. Poor Credit Arrangement Management

 

This can manifest itself in different ways from not qualifying for additional loans, mismanaging funds, or failing to see the higher interest rate associated with poor credit.

For those who are starting up a small business and taking out loans, the interest rate will often be based on credit rating.

A single percentage point adds up to hundreds, if not thousands of dollars in extra expenses that do not go towards helping your business get off the ground.

The credit rating is the backbone of your loan acquisition efforts. It needs to be as strong as possible so that you can get the best interest rates. It helps if you can raise money from other sources to keep your borrowing down to a minimum.

In any event, the arrangement management you apply to your credit will play a significant role in the success of your small business efforts.

 

Solution 7.1: Do not handle credit arrangement on your own.

 

If you are not a financial professional then handling your credit arrangements on your own is not the best idea.

Credit mechanisms can be different and they are often hard to understand or manage.

Therefore, it’s highly recommended to seek advice from an external financial advisor or your mentor before taking any loans.

 

Solution 7.2: Try to avoid credit where possible.

 

Although credit gives you a nice boost, you still have to repay the money.

If you are not sure that you will effectively use the instant access to an increased purchasing power that credit entails, simply do not take it.

Don’t arrange any credit that you do not really need.

Even too much funding can harm your business.

Nine times out of ten you need less money to start your business than you might think.

Don’t make the mistake of borrowing money to fuel your business for the next five or ten years – usually you only really need enough money to make progress this year (plus 25% for unexpected expenses).

In other words, avoid credit where possible!

Building a business without getting involved in any sort of credit may take more time and effort, but running a self-sufficient business that does not need to pay anything out is a beautiful thing.

 

Self-sufficient business that does not need to pay anything out is a beautiful thing Click To Tweet

 

Solution 7.3: Consider other available financial mechanisms/tools.

 

Although the small business loan is probably the safest way of funding your business, there are still a few other financial mechanisms that might work even better.

In case you reasonably need extra capital don’t immediately go for a standard loan. Instead, research the other available funding options and go with something that matches your situation the best.

8. Personal Use of Business Funds

 

Admit it.

Too many business owners are tempted to take money out of their business accounts and spend them for their own use.

Given that the failure rate for small businesses is tied directly to how they spend their money, any of it that goes for personal use is taking away from the bottom line.

Tight management of the funds is crucial, especially in the first year of business. Therefore, there should not be any funds diverted for personal use during this critical time. Once the profits start rolling in and the loans have been paid, then you can reasonably reap the rewards of your efforts.

 

Solution 8.1: Make a clear distinction between you and your business.

 

Your business and you are separate (often physical and legal) entities. So, the funds your business owns is not the money you own unless those funds are duly transferred to you (as to a legitimate business owner).

Although it’s slightly hard to make this distinction when you operate as a sole trader, it is still very important to understand this.

Your business is not you; it just operates for you.

If you mix things up, then chances are that you’ll hinder your business instead of helping it.

So, make a rule to take any money out of your business only when it is financially and strategically justified.

 

Pro tip: On the contrary, throwing too much money into your business for no reason can be another potential mistake. Do not subsidize your business for no solid reason. Avoid investing extra cash to diminish its deficiencies.

Your business must stand on its own feets and become self-sustaining.

Accurate business data is critical in making the necessary improvements.

Too much help may cause subsequent failure.

 

Solution 8.2: Keep separate accounts.

 

Keeping your personal and business accounts separate will help you to not mix things up.

Below is the video by Nina Kaufman explaining why mixing your money is not a good idea:

 

 

Solution 8.3: Follow your procedures.

If you have specific procedures or rules for taking money out of your business – follow them.

Even if there are no penalties for the violation.

In case you do not have any procedures, but feel like it might help you – create them.

No need to make something fancy here. Even the most basic and straightforward procedures/rules may work.

In the end, it’s not the procedure itself but the compliance that matters.

 

Solution 8.4: Make sure all transaction between you and your business are at arms-length.

 

As you have separated your own personality from your business, now all transactions between you as an individual and your business as a business entity must take effect at an arm’s length.

This is important to ensure that the big picture of your business is not irrationally distorted.

 

Solution 8.5: Pay yourself a reasonable salary.

 

Pay yourself a reasonable salary that suits your business position.

Take money out of your business in the form of dividends instead of a salary or vice versa depending on your tax and financial situation.

Make sure that in all cases your salary is rational.

%

Failure rate for the fastest-growing companies in the US

Unexpected growth can destroy your business.

Do not repeat the mistakes made by Starbucks, Krispy Kreme, Pets.comCrumbs Bake Shop, Wise Acre Frozen Treats and others.

While many small business owners would love to have the problem of too many people purchasing their products, it can create the unusual situation of not earning enough money to expand the business to cover the additional demand.

This is particularly true for manufacturing firms that must purchase new equipment and add new space to keep up with the sales.

This is more of a business model issue, in the sense that most planning revolves around projections for a steady growth in sales.

If the demand should spike unexpectedly, it puts the business in the unusual situation of not having enough capital to expand and meet the demand.

 

Solution 9.1: Define if the unexpected growth is temporary or long term.

 

It is best to simply work with what you have as long as possible to see if the spike is temporary or long term before making any decision.

If this is a temporary phase, then the necessary adaptation should also carry an interim character.

You have to be able to return quickly to your previous state without negative consequences.

 

 

Solution 9.2: Get prepared by educating yourself and educating/empowering employees.

 

If it’s clear that the growth is dependable, then you might consider investing more resources to adjust to it on a long-term basis.

Probably the best thing you can do is to educate yourself and your employees about the upcoming changes. This will save you from adverse effects that the adjustment can bring to your business.

Jumping into rapid growth without being well prepared, or even worse without really knowing what exactly you are doing can be fatal.

 

 

Solution 9.3: Go ahead with a growth strategy only.

 

It is highly important to have a clear plan before you enter into a phase of rapid growth. Combine the education part discussed above with creating a detailed strategy, and you’ll be safe in most cases.

 

 

Solution 9.4: Control costs and debt.

 

The riskiest part of unexpected rapid growth is the finances.

You do not want to fail when it comes to costs and debts.

Any financial mistake you make directly affects your cash (and the impact is even greater with higher growth rates).

As you already know, cash is the lifeblood of business.

If finances are poorly managed during the rapid growth phase, the chances are that the business will fail very quickly.

 

 

Solution 9.5: Beware that fast-growing businesses need to be managed much more carefully.

 

Keep in mind that fast-growing business should be managed in a more intense way. Be ready for this.

In case you are not sure that you can make it, simply don’t go for it.

Instead, focus on a slower but stable and safe growth strategy.

10. Competition

 

It can be quite difficult for small businesses that are just starting up to survive against established competition.

The most common failures happen when not enough research is done in the field to see if there is any room for a new business in that industry.

While it is true that several businesses in an industry is indicative of consumer demand, it is also often the case that the established businesses are already handling most, if not all of what customers want.

 

Solution 10.1: Defining the potential to sell.

 

Research is crucial to see if the demand is sufficient for a new business to enter the market.

After all, the key to running a successful business is not the effort to sell a product, but finding a product that sells.

 

Solution 10.2: Finding gaps. 

 

Consider the growth rate and location of the competition to see if there are areas in your community that are not being properly served.

 

Solution 10.3: Accepting the challenge.

 

Calm down and understand that competition is a part of business and it’s up to you to leverage this for your benefit.

Accept the challenge, and this will correctly change your mindset.

 

Solution 10.4: Competition as a part of business plan.

 

Dealing with competition must have been part of your business plan. If so, then stick to it.

However, if you have missed this part during the planning stage, then the first thing you want to do is not to take spontaneous decisions. Instead, research your competition and prepare a solid strategy to overcome it.

Here are a few quick tips to help you with your strategy.

Competition in the context of business planning is a relatively broad topic and obviously out of the scope of this article. For better results, we recommend researching this on an individual basis or simply moving to Solution 10.7.

 

Pro tip: The best way to research your competition is to become a customer. Buy from your competitors to identify their strengths and weaknesses.

 

Solution 10.5: Sharing with competition.

 

Realize there is plenty of business to go around for everyone, even in a saturated market.

While you want more and more of that market share, the fact is that you probably couldn’t handle one hundred percent of it. So be nice and share as long as you get enough to keep going.

This however does not mean that the business should stop competing at any point.

Business is a non-stop growth machine in essence. Once stopped it starts to go down.

 

Business is a non-stop growth machine. Once stopped it starts to go down. Click To Tweet

 

Pro tip: Implement a two-fold approach towards your competition.

  1. Identify the best and the worst things your competition does.
  2. Match this with what your business does.
  3. Adopt the best aspects of your competition that your business lacks and get rid of the worst ones.

If implemented correctly this strategy will help you to double win your competitors.

 

Solution 10.6: Focus on your business.

 

This is an alternative approach to dealing with competition.

The idea behind this is that the more you focus on your competition, the less your focus will be on your own business.

More time spent dealing with competition = less time spent improving your own business.

 

More time spent dealing with competition = less time spent improving your own business. Click To Tweet

 

 

Blackberry’s futile attempt to compete with Apple and Google meanwhile moving in quickly to capture the smartphone market is a good illustration of this formula.

When BlackBerry finally did launch a touchscreen device, it was seen as a poor imitation of the iPhone.

Too much focus on competition laid the ground for Blackberry’s subsequent failure.

In Q1 2009 BlackBerry owned 20.1 % of global smartphone OS market share.

This is how the market shares look as of January 2017:

  • Android 63.99%
  • iOS 32.03%
  • BlackBerry 0.49%
  • Other 3.49%

The universal solution: do not accept failure

 

In the end, anyone who starts up their own business will need to take all the major risks into account to have the best chance of success.

Preparation is one of the keys to success when starting a small business.

While you cannot take everything into account before you begin, by being prepared for the most common reasons of failure, you can improve the chances that your small business will be successful.

By focusing your efforts on running a tight business model, you can avoid many of the pitfalls that cause small businesses to fall apart.

As we see from the research above, all major reasons for new business failure are somehow interconnected, and almost all of them point to the same roots: poor planning, incompetence, lack of persistence.

The success of your small business will ride in large part on the effectiveness of your planning and research, and keeping overheads at levels that allow your products or services to be purchased by the public.

The more work you do before launching your small business, the better chances you have of enjoying success.

The sole reason for business success is the entrepreneurs themselves.

If you refuse to fail, you won’t fail.

As Adeo Ressi (The Founder Institute) puts this into words: there is only one reason why the business fails – it’s when the entrepreneur gives up.

That’s it.

Period.

We’ll be glad to hear your thoughts!
Please share them in the comments section below.

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