5 Mistakes That Can Kill Your Business

The Indian Economy is experiencing one of the worst slowdowns ever in its history due to the global economic slowdown, macro-economic imbalances, unstable polices and bureaucratic logjam. India's GDP growth rate which stood at 8% a few years ago has slowed down now. Almost all industries and businesses have felt the pressure of the economic slowdown and are struggling to cut costs and improve profitability. Further, with India's economic recovery forecasted to be slow and uneven, it is important for businesses to avoid making mistakes as they continue to walk a tightrope. In this context, we now present a list of mistakes that every business must avoid to ensure they are successful and continually growing.

Mistake #1: Starting without a written business plan

They is a saying "a planned start is half success", which is very true in business and every business must start with a written

business plan

. A written business plan will allow the entrepreneur to effectively convey his/her vision to prospective investors, employees, customers, suppliers and align everybody's interest in the same direction. Also, through the process of

writing a business plan

, the entrepreneur has the chance to gain clarity about the objectives of the company, gain a deeper understanding of the industry and have milestones, which would be a very good roadmap for the business to follow in its early days. In addition, a good business plan must always have financial projections that are realistic. Though a lot of ideas might sound great in a discussion, it is important to create a financial model for the business and project Return on Investments based on several realistic scenarios. Therefore, a good business plan can help the entrepreneur from being disorganized or avoid undertaking non-profitable ventures. Many entrepreneurs invest a lot of time, money and effort to start a business, only to find that they are unsuccessful because they overlooked a few key details. A well written business plan can help businesses avoid this costly mistake.

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Mistake #2: Starting a business without the right funding

While starting a business, its vital to estimate the cost of the project along with the means of finance. It is vital to secure funding before making any significant investment in the project. Many businesses start without proper estimation of cost of project or funding arrangement, leading to a compromise in the quality of the project, delay in completion of the project or non-completion of the project. Therefore, before starting any significant investment into the project, it is vital to secure funding for the project and create realistic cash-flow projections on a month-on-month basis for upto a year. Know more about business loan without collateral. Loan without Collateral in India

Mistake #3: Working capital funds mismanagement

For any entrepreneur or business owner, it is imperative that they have a basic understanding of finance and accounting principles to be successful. Studies list "Poor Financial Management" as the number one reason for business failure. Therefore, an entrepreneur must be knowledgeable enough to distinguish between short term funds and long-term funds, and utilize them properly. Many businesses run into a series of problem stemming from diversion of working capital funds for long term uses such as capital asset creation, discretionary expenses, etc., Therefore, to ensure the operations of the company runs without any hitch, an entrepreneur must avoid diversion of working capital funds, over reliance on supplier credit, borrowing at high cost and a scarcity of working capital funds.

Mistake #4: Lack of internal controls or improper bookkeeping

Lack of systems for proper

bookkeeping

or late filing of financial information with statutory authorities is a sign of a business in trouble. Every business must have in-built systems and processes to present financial and operational information to the management and regulators. Constant and accurate feedback in-terms of operations and financial data can help the management make correct decisions based on hard facts and keep the business agile. Lack of systems and process to generate financial and operational information is like flying an aircraft blind, and can lead to major mistakes and seriously hamper with the management's ability to make timely corrections to keep the business progressing in the right direction. Also, proper

internal controls

are necessary in every business to avoid instances of employee/supplier fraud and help foster a professional work culture in the business.

Mistake #5: Underutilization of assets

Businesses work on the premises of investing in assets in expectation of higher returns from the assets in the future. Therefore, it is important to keep a watch on the invested assets of the company in the form of (land, building, machinery, people, brand, etc.,) and make sure they are continually being maintained and utilized to achieve acceptable Return on Investment. It is important for the management to constantly lookout for non-performing assets and bring them to utilization or liquidate them at the earliest to avoid un-necessary costs. Allowing un-utilized or under utilized assets to remain in the business without any repercussions will lead to the fostering of an unproductive work culture in the business, which could be disastrous.

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Frequently Asked Questions

Common questions about Avoid Business Mistakes: Planning & Finance Strategies.

A written business plan is crucial as it helps the entrepreneur gain clarity about the company's objectives, understand the industry better, and have a roadmap for the business to follow in its early days. It also allows the entrepreneur to effectively communicate their vision to investors, employees, customers, and suppliers, aligning everyone's interests in the same direction.

Securing funding before starting a business is vital because it ensures that you have the necessary resources to make significant investments in the project without compromising its quality or facing delays or non-completion. It also allows you to create realistic cash-flow projections and avoid financial constraints during the initial stages.

Improper working capital management can harm a business in several ways, such as diversion of funds for long-term uses like capital asset creation, over-reliance on supplier credit, borrowing at high costs, and a scarcity of working capital funds. This can lead to operational hitches and potentially jeopardize the business's ability to function smoothly.

Proper internal controls and bookkeeping systems are essential for a business to avoid instances of employee or supplier fraud, foster a professional work culture, and provide accurate financial and operational information to the management. This information is crucial for making informed decisions and keeping the business agile and on the right track.

Monitoring and effectively utilizing assets, such as land, buildings, machinery, people, and brand, is crucial because businesses invest in these assets with the expectation of higher future returns. Underutilized or non-performing assets can lead to unnecessary costs and foster an unproductive work culture, which can be detrimental to the business's success.

Lack of financial management knowledge can harm a business significantly, as studies have shown that poor financial management is the number one reason for business failure. It is imperative for entrepreneurs and business owners to have a basic understanding of finance and accounting principles to distinguish between short-term and long-term funds and utilize them properly.

Creating realistic financial projections in a business plan is crucial because it allows the entrepreneur to project the Return on Investments based on several realistic scenarios. While many ideas might sound great in discussion, a financial model can help determine their profitability and feasibility, preventing the entrepreneur from undertaking non-profitable ventures.

A lack of systems for generating financial and operational information can severely harm a business as it is like "flying an aircraft blind." Without accurate and timely feedback on operations and finances, the management cannot make informed decisions or timely corrections to keep the business progressing in the right direction.

Securing proper funding before making significant investments in a project is vital because it ensures that the project can be completed without compromises in quality or delays due to financial constraints. Starting a project without proper funding arrangements can lead to issues such as non-completion or substandard quality, which can be detrimental to the business.

A well-written business plan can help entrepreneurs avoid costly mistakes by providing a roadmap for the business to follow in its early days, allowing for effective communication of the vision to stakeholders, and identifying potential issues or oversights through the process of writing the plan. This can prevent entrepreneurs from investing time, money, and effort into unsuccessful ventures due to overlooking key details.