Common Business Problems and Basic Rules to Handle Them

Common Business Problems

Now let’s identify some of the common mistakes made when businesses begin to grow. These mistakes can be deadly, so benefit from the others who have gone before you!

• Uncontrolled cash flow: People fail because they run out of money. When you run out of cash, you crash. So, prepare your cash flow projections for expansion very conservatively. In projections, be sure to:
  1. Forecast income (sales) very low
  2. Forecast expenses very high
  3. Provide for unanticipated contingencies
• A drop in sales or insufficient sales: If this happens, your income and cash flow will be impacted. Immediately take the necessary remedial steps by ruthlessly cutting costs.
• Higher costs: Can you increase the volume of sales? Can you offset with higher prices?
• New competition: The reality of the entrepreneur’s life! Can you learn from them? Can you neutralize their opening impact?
• Business recessions: You will need to promptly cut costs to maintain earnings and cash flow.
• Incompetent managers or employees: Act swiftly to rid yourself of them.
• Dishonesty and theft. Study the ways your most successful competitor controls all forms of dishonesty that your business is exposed to, including shrinkage (shoplifting) and employee dishonesty. Each business will be different.
• A combination of any or all of the above.

Basic Rules for Handling Serious Business Problems

What are your recommendations for people when they encounter serious business problems?

• Identify and acknowledge your problems with brutal honesty.
• Immediately reduce your losses by unemotionally cutting your costs to maintain a positive cash flow and profitability. This is the first and most important action to take.
• Don’t switch horses. Stay with the business you know unless its future is fatally defective.
• Take the initiative to explain to your creditors what your problems are and why slow or smaller payments will be necessary. Never write post-dated checks or send late payments without an explanation.
• Don’t cut value or quality of your products or services. Make them even better.
• Improve every aspect you can of your performance and image.
• Look for opportunity in adversity. Sometimes there will be bargain opportunities during business slumps.
• Remember that businesses have cycles. So, hang in there and ride out the adverse periods.

Suggested Activities

• Review case histories of the most successful businesses in your field.
• Review the case histories of failed businesses to determine their mistakes. Was it inadequate testing, planning, and experience?
• Identify a typical business problem in your intended business and plan a solution.
• Identify a combination of problems in your business and plan a solution.

Top Ten Do’s and Don’ts

DO-

1. Motivate your managers with monetary incentives tied to their individual success.
2. Copycat the successful marketing and policies of your large, successful competitors.
3. Identify, acknowledge and attack your problems with brutal honesty.
4. Look for opportunities, including bargains, in hard times.
5. Stick with what you do best during downturns in business cycles.
6. Compartmentalize your expanding business into profit centers.
7. Copycat the internal controls used by your successful competitors.
8. Prepare monthly financial statements of your individual profit centers.
9. Act swiftly to rid yourself of incompetent or dishonest employees.
10. Take the initiative to keep creditors informed of your problems and needs.

DON’T-

1. Think about your second store before the first one is reliably profitable.
2. Sign long-term leases, (Instead ask for short-term plus options.)
3. Open the second store before delegation controls are in place.
4. Let self-confidence overcome prudent and calculated decision-making.
5. Give your personal guarantee wherever asked.
6. Let commissioned salespersons set prices.
7. Fail to promptly cut cost to maintain positive cash flow.
8. Pursue a “commodity” business (one without pricing power).
9. Cut the value or quality of your product or service.
10. Delegate signing checks (any amount) or making capital expenditures.

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