The big mistakes small businesses make when things aren’t going well
What are the biggest mistakes small businesses make during a downturn that lead to unnecessary failures? originally appeared on Quora: the place to acquire and share knowledge, allowing people to learn from others and better understand the world.
First, the inability to establish multiple profit centers and congruent revenue streams. Having this in place reduces your operational risk. If something happens to one of your income streams, you have additional income streams that can help sustain your business until you are fully recovered.
Second, not having enough working capital. Working capital is important because it is a measure of a business’s ability to repay expenses or short-term debt. It is calculated by subtracting your current liabilities from your current assets. It is critical to the fundamental financial health and operational success of a business, especially during a downturn. Successful working capital management is important to maximizing your operational efficiency.
Third, failing to meet the needs of your clients or clients (Patrons, the 5th P). You should ask them what they need or want to make their life easier during the recession. Patrons are one of the most important parts of a business because patrons bring revenue to your business. It is important that you develop a diverse customer base. Most businesses follow the 80/20 rule where 80% of your revenue comes from 20% of your customer base. However, if anything happens to that 20%, then 80% of your income is at stake. Diversification is key here, as it reduces your operational risk, an essential part of thriving in a recession.
Fourth, there is a lack of PURPOSE: Always innovate and commercialize. When it comes to business, “AIMing” is the name of the game. Too many business owners are stuck in the same process and routine when running their business, causing them to fall behind by compared to their competitors. When an industry evolves or customer demand changes, your business needs to be nimble enough to pivot. This may include adapting your products to new customer preferences, integrating into a similar industry, or capitalizing on new customer markets using innovative marketing strategies. Either way, failure to do so could potentially push your business to the brink of bankruptcy.