PRIME Initiative

Some common business dangers

1. Failure to sell

New businesses should concentrate on winning their critical early customers before anything else. If you are uncomfortable with selling, try another approach. Selling doesn’t have to be the traditional hard sell, but it does need to be done. Even if you are busy now, set time aside for thinking about where your next customers are going to come from.

• Feel bad about selling?
• Basics of selling explained
• Free club course on marketing (audio podcast and workbook)
  
• Understanding customer needs

2. Not watching the cash position

Know what you have got from week-to-week, as this is a very common cause of often completely unnecessary failure. A sudden cash shortfall can happen even if things are going well. Indeed the cash can run out just when you get very busy, as you may be spending a lot on stock or materials and not have time to watch out for pitfall no 3.

• Managing your cash flow

3. Failure to chase for payment

Chase up money promptly or they’ll think you don’t need to be paid. Don’t be embarrassed - if you have done the work you deserve to be paid. But don’t take it personally - be businesslike at all times. Regular reminders and clear terms of payment can forestall many problems, but if you have to go to law the small claims court (the county court) is quicker and simpler than many people expect.

• Dealing with late payment excuses
• How to get paid on time
• Checklist on controlling credit

4. Underpricing

Pricing is one of the most difficult things for a new business to get right, because you don’t yet know all your costs or have much evidence of how your customers respond to price. A common mistake is to overlook some major costs and thus price too low. It’s hard to increase prices later to the same customer. If on the other hand your prices are too high then achieving sales will be difficult and your marketing costs will be high. If you suspect this is the case experiment with lower prices through time-limited sales or trial offers to particular customers.

• The dangers of competing on price alone
• Regrets charging too little for too long
• Experts answer 10 pricing questions
• Lloyds TSB on pricing your product or service
• Three firms find out how low they can go (article and audio podcast)

5. Failure to do a reality check on your basic business idea

Any entrepreneur needs enthusiasm to overcome all the inevitable obstacles, but don’t let it blind you to fundamental flaws in your business idea. Think of all the dreadful singers that enter The X Factor. Though their mum likes them, and their friends say they like them, a look in their audience’s eyes should alert them to the fact that they are not good singers. Look at your business from the point of view of your audience, the paying customers. Are there enough of them, and will they really pay enough to give you a good income when all your costs are taken into account?

• How to thoroughly research your market
• On the other hand you could be right
• Reality check from Dragon Peter Jones

6. Ignoring seasonality

It is amazing how many types of business show a strong seasonal pattern of demand that is not obvious to the outsider. It’s not just toys, ice cream and fireworks but journalism, dog kennels and car parts. When you enter a market do all you can to quiz people in the know about its distinctive seasonal pattern. Methods used to counter big seasonal swings include adjusting pricing (as in the holiday industry), diversifying into a market with an opposite pattern and exporting to somewhere with different seasons.

• Copying with seasonality

7. Forgetting about the competition

It’s a rare business that has no competition, so you need to think up good ways of dealing with it. Avoid entering a crowded market unless you have a very good plan for winning customers. Aromatherapists abound in some localities - which makes it difficult for any of them to make a profit. Try to make your product or service unique in some way that matters to the customer, so you are not competing head on. Take a lesson from the animal world and search out your own niche.

• Finding space in a crowded market - operating in a niche
• Changing marketing tack to beat competition

8. Ignoring legalities

Only take risks in the area you are most confident in - which for most people isn’t the law. Minimise risks everywhere else so you have less to worry about. Always check the small print in contracts before you sign. You don’t need to be obsessed with regulations, but watch that you have the necessary licences if for example you are street trading, that you obey hygiene laws if handling food and that you know the basics of employment law if you take someone on to help. Legal wrangles can waste a lot of your time or even close you down if you get it wrong.

• Health and safety basics that no business can ignore
• Check for government regulations that might apply to your type of business
• Top data protection pitfalls for small enterprises
• The legal aspects of taking on new premises

9. Getting involved with scams and con artists

The world of business has its seamier side. Be cautious of the off-the-shelf business opportunities market - some venerable scams are still active particularly in self-employed selling businesses, and new ones are always being invented. Franchises should be BFA members. If not why not?

• Is that trading scheme legal?
• PRIME’s guide to buying a franchise
• British Franchise Association site

10. Getting trapped in long-term arrangements

New and small businesses are usually best off keeping things flexible, so they can move to where the money is. You don’t want to get locked into anything you can’t get out of easily. This applies to premises, hiring staff and contracts with suppliers. The big strength of small businesses is that they can learn by doing and quickly change to take advantage of the opportunities they discover. You don’t want to throw this advantage away.

• Getting the right deal - negotiating skills

Comments please. We are preparing this list for a guide which we’ll make available (with links to helpful resources) both online and in printed form. We may also use it in future live workshops.

But have we got the right top 10?