Business news, stories and rants

According to a recent survey by Simply Business, weak financial management, an absence of basic business planning, uninformed decision-making and inadequate contracts impose the greatest risk for early stage businesses.

1) Financial control

Many startup businesses have become so focused on working IN the business that they neglect working ON the business.  Close to a third (29%) of SME owners admit that they are so busy running their business that they struggle to keep track of their company’s finances.  

In addition, many are failing to perform basic due diligence on customers and suppliers and end up with substantial bad debt problems.  Nearly two third of SMEs (65%) do not credit check new customers.  In fact, a worrying 30% of firms have no formal contract in place for business customers at all.

Our Advice:  Even when your business is doing great you should not let yourself think that profit will follow automatically.  Are you in control of the costs?  Do your invoices actually get paid?  Don’t just pass the bills and invoices to your accountant for filing.  Set aside a couple of hours each month to go through the invoices you issued, the orders you received and check the transaction records for the past month.  Cash is king, and you need to know where you stand financially.  Make a note to follow up on overdue payments and to check the credit status of customers who placed sizable orders with your company.  It is boring initially, but believe me, you will soon get the hang of it.

2) Managing Business Continuity

The research also shows that the majority (54%) of entrepreneurs have no written business plan, and a further two thirds (68%) don’t have detailed scenario plans for coping with unforeseen changes in the operating environment.  Even more alarmingly, half (56%) of the companies don’t do market research or consult their accounts (54%) when making significant business decisions.

Our Advice:  Business plans are not about literary skills and those you have for internal use don’t have to be great reads.  The internal business plan is however an essential record and a point of reference for your business:  your thought may change, memory fades and there are issues you hate to spend time thinking about.   Create a structured business plan, even if you just use bullet points,  to cover objectively and evenly all aspect of the business.  Force yourself to go through all issues from IP through marketing, pricing and sales strategy to financial projections.  It will help you  flag up any potential problems and risks, so that you can mitigate or prevent them.  To make the task easier, just use a good, detailed business plan template and fill in each section with a simple summary of the key facts you have and the assumptions you use.

Click here for our business plan template

3) Record the terms of your agreements

Last but not least, many startups are running the risk of costly legal actions due to inadequate shareholding or partnership agreements and employment or service contracts.  Over a fifth (21%) of small cmpanies have no formal contracts for their permanent employees and business partners and some of them don’t issue terms and conditions with service contracts.

Our Advice:  Circumstances change, people change, people’s goals and expectations change.  Many if not most business partnerships eventually come to an end, as the partners – be it investors, collaborators or co-founders – grow apart.  What happens at this stage should be determined by the agreement that was put in place at the beginning.   Why?  Because it is much easier to enforce an agreement that everyone has been aware of since the beginning than come up with new rules when emotions run high.

I cannot emphasize enough the importance of putting a detailed agreement in place at the start.  It can be easily updated if and as circumstances change, but it still serves as a shared point of reference to all. I like old-fashioned, long contracts as I see them as a document that lists the remedies for all the worst-case scenarios you can think of so that you don’t have to think of them ever again.  Trust me, it takes much-much less time and money to put an agreement in place early on than trying to come up with an agreement when things have already gone sour.