4 most common mistakes businesses make when expanding
For both the dedicated, and first-time entrepreneur, the prospect of growth is what it’s all about. The thrill of starting out something from scratch, and watching it mature into the company you dreamed up in the dusty corner of your local is the success story all start ups dream of. This scenario however takes the process of growth for granted; a sure-fire trajectory into financial stability once you’re overcome ‘the hard part’, aka the grit of initially starting up.
Dropping your guard isn’t really an option during periods of growth — getting the process right, and putting practices in place to help you manage risk is essential if you’d like your company to be around in the long term. Fortunately though, there are ways you can get clued up, and best prepare yourself to tackle these hurdles when you face them.
Here’s four of the most common mistakes business make when expanding, to help you do just that:
1. Cash flow
Without doubt, not managing money or cash flow is the number one common mistake businesses make. There are plenty of ‘hidden’ costs that creep up when we start a business — things like desks, cabling, office space rent, electricity bills, and unforeseen deposits and needs — that can take a big chunk out of the initial investment pot you’ve set aside. And then, there’s the cost of people.
Employees are without a doubt the most expensive part of a business. Sure, there’s their wages, but there also the costs of their NI, their computer, their desk and chair, etc. If you hire someone on a 25k salary, in total, for instance, they’re likely to cost you more towards the 36k mark. It’s important then that you consider your potential ROI per employee: as a rule of thumb, your employees should be making around 5 times that amount of money back for you. If you’re hiring for sales people, they should be making around 10. Getting this part right is paramount — the worst thing you can do is not pay your staff, or to make them feel undervalued, because then they’ll leave, and your business will definitely feel the strain.
2. Not understanding how to run a business
That might seem a flippant thing to say, but here, we’re talking strictly in practicalities. Can you truthfully say you fully understand how VAT works, or are wise to the legal implications of starting up? Are you aware of any specific obligations you might have if you’re starting up in a certain industry?
It was recently reported that over a third of Britain’s smallest business owners aren’t aware of the rules of VAT, and so may be at legal risk. As many as 780,000 microbusinesses are completely in the dark about the VAT threshold, as well as their obligations to collect sales tax and report details to HMRC. The solution? Read, learn, or seek out help from a professional who knows their stuff.
When you’re starting up for the first time, it’s true that you don’t know what you don’t know. Whilst the ‘learn as you go’ tract can be as enriching as it can be stressful, a lack of knowledge can also be the discerning factor that causes your business to go under.
3. No focus on customer acquisition
Another common mistakes, although it may be a cliche, but it’s one for a reason: every good business really does start with a good idea. But for an idea to grow and flourish into a profitable business, it needs to be put in front of people that are going to be interested in it. Then, you need to turn those people into customers. Your business isn’t going to last if no-one is paying you any money for whatever it is that you’re offering.
The answer, again, relies on you getting clued up on what you need to do to practically bring in customers. Things like understanding basic principles of marketing (how will you be able to afford someone to do it for you if you aren’t bringing in any profit to start with?), and putting dedicated sales strategies in place to directly target customers. Are you reaching your customers online, or will you need to advertise to local community members about your new shop? How will you build relationships with them, and demonstrate the value of what you’re offering? These are all huge questions, but need to be considered, and answered in the depth they deserve if you want to draw in the right people.
4. Not having the correct investment
Investment is often a tender point for budding entrepreneurs. But between the stresses of finding, and securing a source, little weight tends to be given to the nature of the investment itself.
Whilst different business have different needs, and perhaps resources available, it’s important to carefully consider what each investment option will actually mean for your business in a practical sense going forward. For instance, if you have a number of key shareholders, it’s within their rights to voice their opinion on how to run things, and weigh in on key decisions. After all, it’s their money you’re working with, too! There is a danger however that a business owner may stray from their original vision from this external pressure, and, in a worst-case scenario, become somewhat of an employee to a funder.
Of course, funders don’t want you to fail (otherwise they wouldn’t have invested!), but will have an impact on how your business is run. If you take a loan from a bank, however, they won’t be ringing up or coming in to check up on you — but again, this is an alternate financial arrangement, which may cause strain, or misgivings, in different ways.
Now you know what common mistakes to avoid when starting a business, take a look at our help centre and learn more about what it takes to start up, and run a successful company.