Everyone dreams of escaping the rat race. We all want to be free, well off and able to do what we like, when we like. This basic human instinct, for freedom and material progress are the two main reasons why people choose to start their own business. And it seems relatively simple. Almost any skill that we use to make our employer richer, we can use to increase our material well being and give us the freedom we want. The quintessential small business story goes something like: "Joe was a cook. A very good cook. One day he decides to open his own restaurant. After hard work and dedication, Joe was able to hire a manager and a chef to look after his business, and is now living life on a beach somewhere in the Caribbean". Yet the road to financial freedom is a rocky one, and for every success story, there are probably ten businesses that went under. However, there is still hope. Businesses go under for reasons that can be avoided, and here are five of them:
1. Cash flow problems- The biggest reason businesses fail is due to lack of stable and substantial cash flow. You may have the best product, the best idea, the best staff and the best business, but if you can't pay the rent, or the bank at the end of the day, you will lose it all. Cash flow management is tough, especially in the beginning stages, as your business is trying to grow, and you need to start paying salaries, loans, utilities, rent etc. A cash flow balance sheet is essential, because it lets you see where the shortfall may occur, and allows you to plan ahead so you're not stuck with a wad of bills to pay, and no cash to do it with.
2. Improper Staffing- Many people start businesses and decide to employ their cousin, his friend, his friend's music teacher's son and so on. Don't hire people out of nepotism; hire them because they can contribute to your business. Of course, if your cousin's friend's music teacher's son just happens to be a mini- Gordon Ramsey and you're opening a restaurant, by all means, go ahead and hire him. Just don't do people favours because you know them. A business isn't a charity, so make sure that everyone will benefit before you hire someone.
3. Improper Research- An ice cream shop is a great idea, just don't open one in Alaska. Do your research! Know the market, the competitors and what people are looking for. Obviously, the above-mentioned example is a glaring exaggeration, but you get the jist. You have to know what people want and if it's already being given to them. Just because you can make a mean triple chocolate vanilla bean fudge ice cream from scratch doesn't mean that someone who lives in the snow for six months of the year will buy it. A good product can only get you so far, but it is your knowledge of the market and its conditions that can take it further.
4. Being a Copycat-Just because McDonalds makes billions from selling burgers and shakes doesn't mean that you can too. Don't just copy an established business idea and hope you can steal customers away from your competitors. To succeed, you have to be original and distinctive. Sure, if you can make the best burgers and shakes, and sell them faster and for less than McDonalds, go ahead. But its always better to carve out a niche for yourself, instead of trying to copy what someone else has done.
5. Lack of Passion-Don't open a business for just money! Be passionate about what you do, and set goals for yourself. Remember, opening a business means that it will take over your life until you can get it to "stand on its own two feet". If you're used to 9-5, and that's all the time you want to put in, then opening a small business may not be for you. You have to be committed, and that is easier when you are passionate about what you do.
I hope this article helps any budding entrepreneurs out there. Although a small business may not be for everyone, it is certainly something that is within everyone's reach. You will know if that kind of life is for you, and if it is, pursue it. Entrepreneurial people waste their talents working for others, and they need to be on their own to bloom. If that is you, then follow your dream, open that ice cream shop (just not in Alaska) and make the best of it. And remember, if you fail, try, try, try again. Loans can be repaid, jobs can be found, but material freedom is something that must be earned. Best of luck with your ventures, hopefully we will be reading about your success soon enough.