Many businesses fail in the first five years.
Many are out there struggling without any significant growth.
While it is easy to blame government policies and economic situation as the causes, there might be some vital things you are overlooking as an entrepreneur that is stunting your business growth.
In this article, I have outlined 6 reasons why your business is struggling and not making money.
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1. No Business Plan
The most common reason why a small business will fail, is the absence of a business plan. Many small business owners don’t have them, and don’t even know about them!
Once I had a chat with a friend who asked me to invest in a business he was thinking of starting. The discussion was progressing well, until I asked for the business plan. He paused and asked why I wanted to see a business plan. After all, he had been explaining the business to me and that the investment was an insignificant amount.
The reason is simple: a business plan will show me if and how my investment will appreciate. Many young and would be entrepreneurs don’t understand it when you talk to them about having a well-researched business plan for their businesses. If I am an investor and you come to me for funding, I have to see your business plan. Ask any professional investor and they will tell you the same thing.
After quickly glancing through the executive summary, I dash to the financials and spend considerable time there for obvious reasons.
First, your business plan shows you have a certain level of commitment and conviction about your project, and that you have thought it through and are sure of its potential success. It is not just enough to talk about how lucrative the business will turn out to be.
Many people always think their ideas are the best. Ideas are good, but they can be overrated. Executing an idea is the big deal.
Maybe you didn’t know that many investors will not put money on an idea that is yet to become a business unless in the case of an inventor who has already patented the idea.
Your business plan shows you have carefully considered every aspect of the business from the operations to funding, equity, exit strategy, legal framework and more importantly, financials.
Your business plan shows you can say with confidence the projected state of the business in maybe 5 years to come, and how you will navigate economic bumps that you are sure to encounter along the way. In other words, you have seen the imminent danger, and are sure the business will work. That is the first assurance your business plan gives to investors and other people.
Apart from the purpose of funding, business plan also guides your operational activities and makes running the business less stressful. The more you go through your business plan and modify it to reflect present realities, the more you become intuitive. Intuition is the ability to know what to do in situations in which you had no previous experience about. With a business plan, you will know the actual stage of your business and how to scale it up.
A business is as good as the liquid cash and the technical inputs pumped into it plus ability to retain old customers while generating new ones. How do you get this needed cash and technical inputs? From investors. How do you convince them to even consider your business? You don’t! Your business plan does, even if you do pitch. Your financials, which is the part any investor whether angel or equity is most interested in tells the total financial state of your business and its viability. If after an honest assessment of your business, it’s almost an impossibility to scale through or break even; do you still wonder why your business is not receiving any attention from potential investors and partners?
You can easily find a business plan template by searching on Google, or for ease, we have found some business plan templates and draft proposals for you. These are free templates provided by the UK Government, so they should more than satisfy your needs!
2. Poor Accounting System
This is vital to the continued existence of the business. Every successful business should have a good accounting system put in place. If you are not financially inclined, then hire an accountant or book keeper, or have a consultant. This is important if you want to know if your business is making profits and to make sound financial decisions. For your small enterprise, you may pick either the Cash (Cash Basis) accounting method or the Accrual (Accrual Basis) accounting method. The first method lets you count income when you actually receive it (either as cash, credit card charges or check) and your expenses are counted when you actually pay them. This is what most small businesses use.
The second method is counting income when a sale is made regardless of whether you actually receive the money for it, and expenses are counted when you actually receive the good or services instead of paying for it immediately. This method is common among large businesses that utilize invoicing and deliver product/service before being paid for it.
Whichever method you choose to adopt for your business should be on the financial might of your business. After this, chose your method of recording transactions: whether hand-recording or by software and learn to maintain the accounting system. Believe me; this will do your business lots of good.
3. Failed Recruitment
Recruiting is the most important skill you can learn as an entrepreneur if you want to build great things. As a focused business owner who is desirous of expanding his business influence, you must consciously build a supportive network of people around you, starting with your employees and business partners or even investors. You cannot create an economically viable business that will stand the test of time without being surrounded by people with genuine hearts who are skilled, passionate and share in your vision for the enterprise. That is when it becomes easier for the business to monetize and the pressure on your neck is reduced, because you have capable hands to manage the business even when you are not around. Many entrepreneurs cannot travel for days and leave their businesses to the care of their employees simply because the trust is not there.
As an entrepreneur, you must have a hiring philosophy. Mine is to hire the craziest. Jack Ma has this philosophy too. As you are putting together plans to start that new business, make hiring philosophy a key component of your plan. Even if it is sole proprietorship, you may need to outsource some activities later, so the philosophy comes in useful. If you have an existing business without a hiring philosophy, I suggest you do a review to include it.
I suggest that in recruiting, you should always conduct a test for potential employees or contractors except where it is not necessary, i.e. where the person’s track records are glaring. Suggest in that test another place with better working conditions and see the reaction of the person. That might help you to decipher if he genuinely shares your goals for the business. You can organize practical tests too. If I want to hire a carpenter for instance, I won’t start asking for the standard length of a table. I will simply give him wood, hammer, saw and nails and watch him create a table out of the materials.
Always remember that your skill as a businessman is how to bring people together to form synergy, otherwise your business will fold up. There should be no room for sentiments when recruiting. You are running a business, not a charitable organization.
My last piece of advice on this point: always have a signed contract with your employees. Believe me; it will save you a lot of troubles.
4. You are Greedy
I have told you it is important to have signed contracts with your employees because of the significance, and of course the legal implications.
As an entrepreneur, you must realize there are some basic unwritten rules you must adhere to if you want your business to keep growing. One of such rules is that you must pay your workers first. Oh yea you heard that right! Pay your workers first and pay them before the last day of the month. I know this might be difficult for some business owners to do, citing economic situations. In as much as I agree, but it is also more of the entrepreneur’s belief system. If you set your mind to it, you can do it. Due to the uncertain nature of business, there are times sales may be slow and not much profits generated. At such times, you may find it difficult to pay salaries. It is not out of place to be a bit late, but make sure your employees are aware of the situation. They are also in the system, they will understand. At such times, make sure you pay the lowest of your workers first because they are more vulnerable. For instance, pay your cleaners and drivers first before paying your manager. And pay your workers before paying yourself as the owner of the business. Remember, you should also be on a salary.
Once you start multiplying profit and economic power starts coming into the business, make sure there is fair distribution of wealth among the workers. It doesn’t have to be only cash based reward.
There must always be a reward system put in place and to be in agreement with people working for you. If you run a laundry outfit for instance and your staff brings in customers for you, there is nothing stopping you from giving such staff a certain percentage of whatever profits made from the customers brought. This will motivate the staff to do more, thereby helping to grow your business and to maximize your value.
I mean you cannot be driving all the choice cars while none of your age-long employees has a car. They won’t be motivated to take risks for the business as they would have if they were the owners.
5. Not Knowing How to Make Money
A rule of business some entrepreneurs are not aware of is that you must know how to monetize your business. This is related in a way to not being greedy. Once you start seeing profits in your business that is not the time for lavish spending. There are steps to follow to monetize your business and position it for expansion.
Take the profits and put these back into the business. Buy better equipment and machinery and rent larger space. Invest in a flawless accounting system. Increase your marketing spend. This is very important.
Some entrepreneurs run their businesses with lackadaisical attitude; they have no proper documentation of how much comes in and goes out of the business. Some without good accounting system even believe they are making profits, when in fact, they are not.
If you have an existing business, you may not realize the importance of documentation until it’s time to approach financial institutions and investors for loans or grants and they request for your accounting documentation. Then you will know the idea you had of just walking into a financial institution and securing loan or grant without documentation only happens in movies. Be detailed and diligent in your documentation.
Strive Masiyiwa once said that when you start a new business, do not take more than 25% of the profit, and only take the money after a minimum of 4 years of consecutive profits.
You can find Strive’s book: Mastering the Mysteries of Business Success: : 101 Business Lessons Drawn From The Personal Experiences of an African Entrepreneur and Billionaire on Amazon.
6. Lack of Integrity
I always tell entrepreneurs that whatever you do, always put your integrity first. You have to sow integrity as a commercial seed because what you trade with in business is your credibility. Therefore, the first thing you do upon hiring your staff is to communicate your mission and vision to them, and also to your clients. Make sure you set a standard you want your business to be known for and do your best not to falter. The way to keep your business going is to have repeat patronages from customers. This can be achieved only if they trust you to believe your services. This even makes your job as an entrepreneur easier because the satisfied customers will go out and promote your brand to others who will also want to have the experience, thereby generating sales for you.
If there is a deadline for the delivery of a product or service to your customers, make sure you don’t exceed the deadline. If you can deliver quality work before the deadline, the better. It will go to enhance your reputation even more. If you find yourself somehow behind schedule, kindly communicate the reason to your customer and give assurances that you will abide to. Customers understand delay. What they don’t understand is lack of communication as to why the delay occurred. The last thing you want for your business as an entrepreneur is negative reviews. The damage done might hurt your business forever.
Know the legal requirements for operating your business in your country and be sure to abide by them to prevent embarrassment and premature death of your business.
This was just one of many other ideas about starting a side hustle, and or making money online without experience. If you want to discover more opportunities, check out our list of additional ways to earn money.
