Key small business mistakes that increase insolvency risk

Small businesses often operate on tight margins and that means they can be especially susceptible if something goes wrong.

However, there are certain actions that can bring about the downfall of businesses, regardless of their size, if they are not dealt with quickly and adequately.

Meeting demand and staying in touch with any market movements are an essential aspect of successful business.

Not evolving with the market will ultimately result in reduced sales, driven by less demand for the products and services on offer.

Future planning, product development and constant innovation are therefore required to ensure that demand exists in future weeks, just as it does on any given day.

Evolving to meet demand can keep a small business at the forefront of whatever market niche it is attempting to fill, while reducing the risk of potential insolvency.

Financial and contingency planning are key to recognising challenges that may exist in the future, and for creating ways to overcome them.

Having several plans of action can make it easier to overcome any issues should something unexpected influence the company’s financial situation.

At the same time, rigorous forecasting can help to paint a clearer picture of the market and can often reveal insights into how services could be streamlined to make them more efficient.

Small business owners may also want to undertake an independent business review to restructure their company further and to reduce any unnecessary outlays.

Cash flow management is another essential aspect of business for owners of small firms, especially if services are bought and sold and with considerable payment terms attached.

While a month can look good on paper, the cash flow of a business may not reflect that if terms dictate that finances are not due for 30 days or longer.

At the same time, hiring decisions are also vital for small businesses, as employees need to add value to the company in order to aid growth.

An understanding of the financial costs involved in hiring an individual needs to be known, as does the ramifications of what several poor hires may bring – several successive bad hires could cost a business in the long-term.

By Phil Smith

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