Ugodre Obi-Chukwu
| credits:
| credits:
Several
factors affect the survival of a business no matter how big or small.
While some are within the control of the managers of the business others
are beyond it. In my opinion, factors within your control are by far
the quickest ways to kill a business. Let us explore some of them;
Not separating the business from the
Owner –Majority of small businesses in Nigeria are owned by one person
and are run incoherently without any formal structure. Most times they
do not understand the importance of separating personal cash from cash
meant for the day to day running of their business.
They are either cashing out from the
business or lending to it without any record to show who is “owing who”.
Sometimes, cash generated from one business is used to fund the startup
of another, which often leads to the end of the initial business. The
cycle continues so long as the owners are making ends meet.
Cash flow – Liquidity is the lifeline of
any business. Without cash your business will simply fail and it
doesn’t matter how much assets you have. I know a businessman who
believed cash must be invested at all times. If he lacked cash he simply
borrowed. Soon his borrowing increased and he had problems repaying his
lenders. He was soon staved of cash and ended up going bankrupt. As a
small business, you must always keep adequate cash reserve to remain
solvent and in business
Too much debt – Small Business loans
such as overdrafts and short-term lines are used to fund running cost or
pay for purchases hoping to pay back when revenues materialise.
However, most divert the money into other uses that add no value to the
growth of the business ending up in a deep spiral into insolvency. A
company with too much debt will someday have to repay the debt and
without finding other sources of repayment the banks will have no option
but to liquidate the company.
Too many creditors – “No credit today
come tomorrow” is a regular signpostused by traders. The reason is
pretty much clear. Selling goods and services without receiving payment
immediately is a recipe for disaster. Whilst it is nearly impossible to
do business without giving some form of credit, how your credit is
managed is crucial to the survival of your business. Some businesses are
best suited for credit whilst some aren’t at all. It is important you
find out where you belong.
Poor human resource management – In
2011, a young banker in the UK almost brought down a bank due to lack of
proper over sight. It is important to instill proper internal controls
that provide specific roles and properly delegates authority.
Employees are also one of the most
important assets of a business. The more skilled and qualified your
employees arethe more likelihood you are expected to succeed. Small
businesses should endeavor to recruit the best possible employees they
can find at the right price. No point employing out of pity when you
have the financial resources to employ quality.
Fixed cost – A common feature of
shopping malls in Nigeria is the turnover of shops at office spaces. You
go to a mall today only to come back a few months later and the shop is
no longer there. Some attribute this to poor sales and lack of
patronage.
Another major reason is fixed cost such
as rent and asset replacement. Imagine having a shop at a mall where you
have to pay a yearly rent of N12m. That means your business must be
able to generate cash revenues in excess of N12m annually just to
atleast be able to pay the rent. Businesses that incur high fixed cost
are more likely to fail quicker than those who manage their cost
properly.
Overestimating the market – Most of us
go into businesses without a proper business plan. Even when we do it is
not a guarantee that the business will be a success. This probably is
because we make optimistic projections without a properbackup plan
should our projections fail. For example, we may believe that sighting a
business at a particular location is a good idea due to the high
population density. However, purchasing power and effective demand for
the product is also a crucial factor. sometimes, we over estimate the
demand for a product because it appears scarce. There is hardly a
reprieve for businesses that overestimate the market. They fail quickly.
Bad publicity – Recently, a very
popular company had a huge problem on their hands. Someone had spread a
rumor that their food contained chemicals that had some consumers
killed.
They immediately went on a massive
publicity spree to debunk the claim and solicited the help of regulators
such as NAFDAC to help discredit the claim. They knew that negative
publicity could in one day wipe out all the brand assets they have
toiled to build and nurture over the years.
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