You Think Halloween is Scary? These 3 Frights Can Sink Your Small Business

Author: Caron Beesley | October 21, 2016

Halloween—the night when the line between the living and the dead thins. In the past, Halloween was a time when treats were set outside houses for wandering spirits and people dressed as ghosts and ghouls so that if they ran into an evil spirit they would be mistaken for one themselves! Scary stuff, but not as scary as some of the decisions and mistakes that small business owners make each day—some of which can put your business six feet under.

Just look at the statistics:

  • According to the SBA, one-third of all small businesses fail during their first two years.
  • Only half of all new establishments make it passed the five-year mark.
  • Each year, an equal number of businesses close compared the number of those that open.

Poor Small Business Cash Flow Management

The number one reason why small businesses fail is cash flow. According to a U.S. bank study, 82% of all businesses fail because of poor cash flow management. Scary!

But what does that really mean?

Cash flow problems occur when the funds exiting a business exceed the inflow of funds, or when the timing of this delicate process is thrown off. For example, if you’ve lined up your bill payments for the end of the month (payroll, suppliers, utilities, etc.), but a large payment from a client is stalled or delayed until next month, you’re looking at a potential cash flow problem. Other causes include cash tied up in inventory that you can’t shift, unexpected expenses, or even a personal crisis that forces you to close your business for a few days.

Managing cash flow at the small business level is tricky. It requires careful management of accounts receivable and accounts payable, forecasting of trends, getting the best possible terms from suppliers, diligent invoicing, and above all an “I’m prepared” attitude.

Cash flow woes are inevitable. In fact, one in three U.S. businesses have invoices that are at least 90 days overdue. Small businesses can prepare themselves for this predicament. Finding a funding source to help cover cash flow gaps—before they happen—can mean the difference between a successful business, and one that ends up six feet under. Invoice financing is one option. Fundbox, for example, offers a an alternative financing solution by giving you access to the cash you’re already owed by instantly advancing the full value of outstanding invoices for only a small fee. Other options include a line of credit, business credit card, or financial cushion.

Get more tips in: 9 Small Business Secrets to Improving Cash Flow.

Not Planning or Testing Your Marketing Campaigns

Small businesses can throw money and clients down the drain in the pursuit of mindless marketing, often overextending themselves with advertising that isn’t working or giving up on marketing because they’re not seeing a quick return.

Advertising is not marketing in its entirety—it’s only part of the pie. All your marketing efforts should be guided and informed by your marketing plan—one that aligns your tactics with your budget and goals (getting leads, building good press coverage, signing people up for demos, etc.). Similarly, give it time. Although it can hurt to invest a whole bunch of money up-front and not see an instant result, it takes time to build brand equity and foster the relationships that are needed to ensure your customers are emotionally ready to buy.

Finally, test and track your campaigns and tactics. This will give you insight into what’s working and what isn’t so you can refresh your approach and waste less money.

For more tips read: 5 Small Marketing Changes that Will Have a BIG Impact on Your Business.

Hiring Too Many, Too Fast

This is especially true of start-ups and those in the vulnerable first two years of business. Startups that hire too early have a 146.7% greater chance of failure than those who take a slower approach. Plus, the true cost of hiring an employee can be much higher than their hourly rate. Benefits, payroll taxes, and other expenses, such as workers’ compensation insurance, can add several percentage points onto a basic salary and burn through your revenue per employee. All this adds up to depleted cash resources when you need them the most.

Employees also require hand-holding, training, and management (certain schools of thought suggest you spend six hours per week with each employee).

Scaling back your hiring plans can equate to more hours and pressure on you—but it does give you more time to focus on your priorities without the cost and time of managing employees during the start-up phase. And, of course, you can always turn to self-managing independent contractors to supplement your own skills.

No one wants to be another scary business statistic, so avoid these mistakes and your business will thrive!

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