Most business failures are caused by the entrepreneur through personal mistakes or shortcomings. Research has shown that about 52 percent of all business failures are due to management issues. And as much as 90 percent of small businesses fail because of incompetent managers. The prospective entrepreneur should be aware of and do all that is necessary to avoid the following deadly mistakes of entrepreneurship.
Ways of which you can circumvent any business problems as an entrepreneur are: AVOID –
- Management mistakes
In some businesses, poor management is the primary cause of business failure. Sometimes the manager of the business does not have the capacity to operate it successfully. The owner simply makes bad decisions in critical situations. Given the competitive nature of some businesses and the unpredictability of profits, business results are quite sensitive to small error.
Entrepreneurs need to have experience in the field they want to enter. Too often some entrepreneurs launch their enterprise without having sufficient experience to succeed. Inexperience can be translated to mean a lack of technical ability or management skills. Each of these shortcomings can lead to disaster. Ideally, a prospective business owner should have adequate skills (a working knowledge of the physical operations of the business and sufficient conceptual skills). So, if for instance, you have no knowledge of how to operate computers, etc. then, you have no business going into that particular business.
- Poor financial control
Every business venture requires proper financial control. This involves, among other things, having sufficient capital on hand at start-up and implementing proper cash management techniques. Undercapitalization is a common mistake that some business owners make at the beginning of their business. They tend to be optimistic and as a result often misjudge the financial requirements of going into business. They start off undercapitalized and can never seem to catch up financially as their ventures devour increasing amount of cash to fuel their growth. Another aspect of poor financial control is improper cash management. This is usually evidenced from persistent cash-flow problems arising from credit screening, careless debt collection practises and undisciplined spending habits.
- Poor location
A business should be sited in a particular place where there are certain factors which favour its establishment such as nearness to target consumers. This requires proper study, investigation, and planning before a business location is selected. Too often, beginning owners ignore this. Some choose a particular location just because they noticed a vacant building. But the location question is much critical to the success of a venture to leave a chance.
- Uncontrolled expansion
Growth is a natural, healthy and desirable part of any business venture, but it must be planned and controlled. Ideally, expansion should be financed by the profits a firm generates or by capital contributions from the owners. But most businesses end up borrowing at least a portion of the capital investment. Sometimes, owners encourage rapid expansion, only to have the business exceed their ability to manage it. As a business grows, problems increase in magnitude and the owner must learn to deal with them.
- Lack of planning
Research shows that less than half of small business owners had formal plan prior to going into business. Many engaged in formal planning soon after starting their business plan (Holt, 1992:78). Most small business owners usually disregard the process of strategic planning because they feel it is something that only benefits large scale businesses. Plans are guidelines for action and as businesses increase in size and complexity, they must be continuously upgraded to reflect changes in the business environment. Generally, a business that fails to plan may also fail to survive. Without a properly articulated strategy, a business has no sustainable basis for creating and maintaining a competitive edge in the market place.
- Improper attitudes
An unfortunate aspect of many business failures is that, too often, individual owners’ attitudes get in the way of sound business practises. Some entrepreneurs blatantly disregard customers and some engage in unethical behaviours. They exploit customers to make a fast buck. Commitment to quality is replaced by a commitment to use sub-standard materials, to pass on marginally safe or defective products and to serve customers reluctantly. These improper behaviours attract customer’s reaction much quicker and the business owner will feel the brunt. If they feel cheated and dissatisfied, they will spend their money elsewhere.