If you dream of owning a business believing you can sit back and make profits at ease, then businesses are not for you. Starting and handling a business is not as easy as you think. From day one, most part of the entrepreneurial journey will be full of cuts, bruises and laughing through painful moments. Understanding this and knowing how to handle it, will help you minimize the setbacks and build through those catastrophes, making your business successful.
So, what are these challenging factors and how do we get through them? Let’s find out.
Understanding market changes and competitors
Moving forward without being aware of the external environment of your business is quite risky. If you are not aware of your position in the market, you might find that you are far behind your competitors. The unexpected entry of a new competitor may cause several consequences such as loss of sales, loss of suppliers and even loss of staff.
This is where carrying out Market Research comes in handy. This may include desk research and field research that revolve around your customers and competitors. When conducting this research it is necessary that you give utmost importance to the competitor’s position within the market. Make sure you consider and compare the following with your business:
- The price and quality of their products or services
- Their marketing strategy
- Any other differentiation tactics they follow in order to have an edge over you
If your competitors are ahead of you in the above aspects, you can use various strategies to level up. This may include discounts, loyalty rewards, strategic alliances with your stakeholders and any other organization including competitors, and optimizing your operations.
Handling Finances
Even profitable businesses can collapse if their finances are not managed correctly and realistically. This brings up the fact that handling finances is an important yet tough to handle aspect in any business. There will be several instances where your company will have to face downfalls due to several reasons such as:
- Problems maintaining an adequate cash flow
- Late payments by customers
- Legal costs in the process of recovering money owed to you
- Financial performance not being monitored
- Issues with the bank (Refusal of loan applications, unexpected interest rate changes, etc.)
Here are a few tips
1. For a better cash flow:
- Practice good stock controls
- Have good credit policies with your customers – and with your suppliers
- Try negotiating long-term payment methods with suppliers
- Improve marketing strategies
- Do everything you can to reduce or eliminate overheads
- Seek advice from experts
2. Managing late payments and extra costs:
- Introduce payment installments so you get something, rather than nothing – again, this is as much about cashflow as it is about keeping debtors in the habit of paying down what they owe you
- Suggest a discount for due payments – again, some cash is better than no cash at all
- Charge a late payment fee, to incentivize timely payments
- Seek legal advice – have this as the last option since this includes extra cost
3. Unmonitored financial performances:
- Use profitability ratios such as profit margins (gross-profit margin and net-profit margin), return on assets and return on equity to assess performance – comparing with benchmarks and with your own numbers for other periods, and your own targets.
- Set a profit goal
- Be aware of profit margins
- Increase sales revenue and decrease expenses
To handle finances as mentioned above, you need cash first! Most entrepreneurs do not have a huge pool of capital that they can invest in their businesses initially. Luckily, in today’s world, there are several investment methods supporting businesses to prosper. Here are a few of them.
Debt finance: This is a method where the money is borrowed to be paid within a specific time with interest. Bank loans come under debt finance.
Equity finance: Either you or some other person invests in your business. This can be family or friends, angel investors, venture capitalists or a public flotation where members of the public give you money in exchange for a share of the company (in most cases “going public” happens later on, when the business is proven and growing).
Crowdfunding: This is a relatively new method that allows several people to pool in money or resources or knowledge for a particular project. Sometimes this is an explicit donation, but for commercial ideas it is often in exchange for early access to the company’s new product or service. Read more on crowdfunding here.
Managing human resources
The human resource department will be responsible for better customer service and betterment of the business in the long run. High performing employees boost the efficiency and energy of the company. Hence, building up a strong workforce can be considered as an important step within the business. Pay attention to the following factors when handling human resources:
- Choosing employees that possess skills necessary for your business
- Establishing clear-cut job descriptions – the employees know what they’ve been hired to do, as does the management, and their performance reviews are clear and straightforward.
- Sharing the business plan with your staff
- Assigning responsibilities according to requirements
- Paying employee wages appropriately for their time and expertise
- Evaluate employee performance
It is equally important to create a proper work environment for these employees. You can use Human resource management strategies to encourage employees to believe in your business and to build trust. These can start from small efforts such as:
- Motivating employees
- Set achievable, realistic goals
- Host team meet-ups and plan occasional breaks from day-to-day work
- Celebrate their personal milestones
- Consider employees’ thoughts and ideas
- Reward them on professional achievements
- Allow them to learn and grow
Protecting the business
Everything is uncertain, and so is your business. Other than losing the profitability of a business, there are instances where components of your business will be at risk. Hence, it is important to take precautions and protect the business.
A risk is a situation, resulting in the disruption of the objectives. These internal or external risks can be operational risks, strategic risks, financial risks, hazard-based risks, etc.
In summary, here is a list of risks that could affect your business:
- Natural disasters
- The outbreak of pandemic diseases (Covid-19 etc.)
- Disruptions in the rest of the country which can affect business
- Global environmental issues
- Theft or fraud
- Terrorism
- Online security and fraud
- Break down of supplier chains
- Failure in electricity/water/fuel or raw material supply
- Broken machinery
- Employee risk
Here are a few tips on how you can overcome the associated risks;
- Identifying risks at the earliest stage possible
- Having a risk assessment and a recovery plan
- Implementing insurance plans for premises, machinery, finances & human resources
- Ensuring security in the premises
- Creating awareness and following work health and safety criteria
- Cyber security
- Using back-up systems in computer-based systems