The Small and Medium Enterprises Agency of Nigeria (SMEDAN) defines the Micro Enterprise business category as those with less than 10 employees and with assets base (excluding land and building) of less than ₦5 million (2012). Many businesses fall into this category. Since the purpose of any business is profit, Profit is also a measure of business success.
Whatever your type of micro-business, there are basic requirements for its effective management, profitability and survival. This article tells you how to manage your micro-business for profit and survival.
First, we review Why Businesses Fail. By understanding why a business fails, we can indirectly appreciate what to do to ensure the success and survival of a micro business.
Below are the main reasons for Business failure:
1) Wrong Input/Output Calculation
A business may collapse if you fail to correctly calculate and apply all important indices such as cost of production versus selling price; or cost of purchase versus selling price. You may be selling at a loss without knowing it. Cost of production includes raw materials, packaging, rents, power supply, staff salaries, machinery replacement, office runs, etc.
2) Plundering the Business
A business may collapse for lack of Loyalty. For example, an Employer plunders the business by taking money from the business for non-business purposes. An Employee plunders the business by stealing raw material and finished products. There must be strict loyalty to grow the business first before taking profit.
3) Wrong Business
A business may collapse if you are in the wrong Business. Do you have the Passion and Drive for the business? Is it the right Business for you? Consider your strengths and weaknesses before going into business. Are you talented, trained and experienced? Don’t be a square peg in a round hole. Make sure you are cut-out for the business you're into.
4) Poor Cash Flow
A business may collapse due to poor cash flow arising from over-investment in fixed assets which stifle cash flow for production. Instead of buying and paying out money, consider renting, hire-purchase or even borrow to start or even for production. A business may collapse due to Insufficient Operating Capital.
5) Selling on Credit
A business may collapse due to Poor Credit Management that produces too many debtors. If capital is ₦2m and ₦1.5m is tied down outside the business in debt, then there is danger of bankruptcy or business collapse. If you must sell on credit, then put in place an effective workable payment plan.
6) Diversion of Funds
A business may collapse due to use of Business Funds for personal expenses. As a business owner, you must always separate your personal expenses from business expenditures. Place yourself on a fixed salary and live within this salary, to avoid consuming your business capital.
7) Lack of Publicity
A business may collapse due to lack of Marketing and Publicity to create awareness about the business. Use the Internet to create an online presence for your business. Use the Social media. Use the Print media. Use the Electronic media. Make some noise about your products and services to get noticed or discovered.
8) Poor Management
A business may collapse if it lacks orderliness in business operations. It is important for you to keep your business promises; pay your staff well and promptly; and engage in Corporate Social Responsibility activities within your business environment.
9) Inability to seize Opportunity
A business may collapse due to its inability to latch unto unexpected business opportunities for growth and expansion, that come its way. You should have contingency plans to enable you be prepared to seize unexpected business opportunities or boom.
10) Lack of Patronage
A business may collapse due to low sales and lack of patronage; especially if products and services are outdated or of poor quality. A business may collapse if its Location makes it difficult for prospective customers to access, reach and patronize it.
Stay smart, wealthy and wise by avoiding these 10 issues that could cause a business collapse. To your success!
What do you think? Please leave your comment in the comments box below.
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Stay Smart, Wealthy and Wise!
© Jay Onwukwe
