20.5 C
Sierra Leone
Wednesday, May 25, 2022

Mistakes That Cause Business Failure

By Gabriel Benjamin

Eight out of ten entrepreneurs that start businesses fail within the first eighteen (18) months, according to findings by Bloomberg. This report is corroborated by the rate at which small businesses collapse in Sierra Leone few years after their establishment. Business owners often complain that the major challenge they encounter is raising capital.

However, the following are more fundamental reasons why businesses struggle in Sierra Leone.

Inability to define the product

Many business owners categorize themselves as general contractors. They are ready to embark on any business that can bring money such as construction, supplies and logistics. This category of business people can better be called hustlers than entrepreneurs because they just want the money.

They have failed to realize that an enduring business cannot do everything just to make money. A business owner should have a definite response to the question, “what product and service do you provide?” because a jack of all trade is master of none.

Every business owner needs to be focused and consistent. You must be a master in your chosen business line. Losing focus by jumping at every opportunity outside your primary field will only end up dragging you behind.

To this end, business owners must think carefully before jumping at business opportunities because they still need to have mastery of a particular business line before diversifying into unrelated ones.

Diversion of funds

Experts say taking business risks has its own reward because it may cause business owners to become more creative and expose them to other opportunities and new challenges, but the outcome is not guaranteed.

The quest to make quick money has been the major undoing of many business owners who venture into other business opportunities they don’t even know anything about.

Although business owners are expected to be risk takers, this does not mean they should jeopardize the destiny of their business by diverting funds meant for the business into a completely different business or a non-operating project without sound and objective planning.

Diversifying into other ventures must only be after a careful analysis of the opportunities and how such investment will affect the well being of the existing business line(s).

Businesses live on cash, and any attempt by business owners to starve it of cash, due to greedy re-investment in other opportunities outside the business line, can be very destructive.

Poor knowledge of financial management

Business consultants say entering into a business should not only be about gut feeling that it will work out or about excellent technical skills, only proper managerial skills will determine its staying power and success.

Out of the three core aspects of a business (operations, marketing and finance), most business owners only have passion and skills which may only be sufficient to succeed in operations and marketing functions.

An average business owner uses the rule of thumb to manage the company finances.

You often hear pieces of advice such as – you are a good cook; you should do well in a restaurant business. This suggests that doing business requires only passion and skills.

But the question is: why do businesses run by people who are passionate and technically sound, still fail? This is because while structured organizations have the capacity to employ competent people to perform these critical functions, small businesses often rely on the business owner to champion them.

A fair understanding of accounting, bookkeeping and finance can change the fortune of your business. Every business owner must have at the click of a mouse, his company’s key financial data such as values of receivables, current inventory level, monthly revenue, monthly profitability, business net asset, balance sheet size and others.

Lack of legal backing

Professionals say a business can be formed as a sole proprietorship, a partnership or a limited liability company. While the sole proprietor and the partners are not usually separated from their businesses, the owners of a limited liability company are different from their company.

Unfortunately in Sierra Leone, most business owners don’t separate their business from themselves. They are the chairmen or chief executive officers and thus, have the right to take cash from the business accounts for personal use without refund.

Furthermore, a business owner who works as an employee of his/her company must pay himself or herself a salary. While such salary must be good enough, it must also be affordable by the business.

To this end, I opine that business owners should stop the habit of unbridled withdrawal of funds from business bank accounts for personal use, which has no potential of growing their businesses.

Related Articles

Latest Articles