Enterprise advise entrepreneurs on how to avoid costly mistakes

Starting up your own business is one of the most adventurous things you can do in the world of work. The thrill of being your own boss, the direct benefits of hard work and long hours and the excitement of making decisions that will directly affect your life, are just a few of the benefits to be reaped from picking up the entrepreneurial baton. Such an undertaking is, however, as risky as it is exciting, a fact reflected in the recent statistic from the Department of Trade and Industry, which states that more than half of all new business ventures in the UK close within three years of opening.

Joyce Duncan, director of operations, at Enterprise North East Trust (Enterprise) comments: "At first glance, it seems surprising that as many as 12,000 businesses in the UK close every year, and that only 50% of small businesses are still in operation after their first three years. On closer inspection however, there are a number of common mistakes that businesses often make, which if avoided, can mean the difference between success and failure to fledgling businesses."

Businesses in the north east of Scotland that received start up help from Enterprise in 2003 are doing much to buck the failing trend, with 83% of them still going strong today.

Joyce outlines how such businesses manage to avoid some of the more familiar pitfalls:

• Lack of Skills and Experience

The best business idea in the world simply won’t get off the ground without the necessary skills and experience required to set things in motion. These could be anything from management to marketing, but whatever the skill, preparation is key. This means taking the time to find out the skills required before setting up the business, and seeking to acquire them, all of which will help things run more smoothly, particularly in the early stages.

• Lack of Funds

Funding problems are key to the failure of most businesses, and arise when new businesses neglect to predict how much money will be involved in starting up. In fact, it is estimated that four out of five businesses start out with too little money. In depth research into the market prior to setting up the business, and particularly into competitors, should help businesses avoid this particular pitfall.

• Sloppy Cost Control

Understanding costing relationships in a business is integral to a business’s survival. With an estimated 80% of small businesses closing as a result of the owners being unable to appreciate flow implications, the practical solution is to hire a reliable book keeper to manage the accounts.

• Poor Sales

Having a great idea and being a dedicated sales person is not enough to spell success in the world of business; if nobody wants your product or service, you’re heading for trouble. Although it may seem obvious, carrying out enough market research before setting up business is vital in terms of being sure that what you have to offer is what people actually want. Often, new business owners are far too optimistic about achieving unrealistic sales forecasts.

• High Cost of Borrowing

A fundamental part of any business plan must be an accurate estimate of how much money will be required, not only to get the business off the ground but also at subsequent stages. It is also worth predicting how much it may be necessary to borrow, and bear in mind the increase in interest rates over time.

• Poor marketing

Many business owners ignore marketing for a number of reasons – they have no experience in it, they feel they don’t have time for it, or even that a good product or service sells itself. Whatever the reason, they do so at their peril!

Marketing is about tailoring what you offer to meet customers’ needs and letting them know you can provide what they need. Successful marketing can do a great deal for a business, and so it is worth working out an affordable marketing strategy before you start up your business.

• Ignoring the Competition

Neglecting to keep an eye on competitors is another reason why businesses fail. Recent statistics reveal that one out of every two failed businesses did not even know who their competitors were. Equally detrimental can be the failure to adapt to a changing market; if a business isn’t up to date with current trends, it is likely to face problems, particularly if competitors can offer a more state of the art product or service.

• Unexpected Growth

A positive, but nonetheless challenging, issue to have to address is that of unexpected growth in a business. While generally a strong point, a business which is required to develop over a short timescale can face problems such as shortages in staff or premises.

• Overtrading

Agreeing to a deal which you are ultimately unable to follow through on is known as overtrading, and can damage relationships with customers and even leave your business vulnerable to failure, if a large amount of borrowing results. One way round this is to increase supply on the condition that the customer pays in cash. Another is to budget for sufficient time between an order and the corresponding payment, and borrow enough to accommodate the gap if necessary.

• Failure to Deal with Red Tape

Businesses have to donate a great deal of time to completing government paperwork, such as National Insurance, VAT and tax forms. While tiresome, the paperwork simply has to be done, so it is a good idea to plan ahead and set aside a certain number of hours or days each month, to do it. It should be factored into work time and should also form an integral part of the business plan.

"Running your own business is definitely challenging," admits Joyce. "But it does provide endless opportunities for learning at the same time. Avoiding the most common pitfalls such as these will help prevent a business from going under, as will bearing in mind a general game plan that says you should always be thinking three moves ahead, anticipating every variable or obstacle, regardless of whether they ever actually occur."

Enterprise delivers business support and advice through the Business Gateway service which is supported by Scottish Enterprise. Telephone 01224 289725 for any aspect of business advice or visit www.enetrust.com.

Picture Caption: Joyce Duncan, director of operations, of Enterprise says only 50% of small businesses are still in operation after the first three years.

Statistics regarding north east of Scotland businesses from Enterprise’s own database.

Sally Wallis
Tricker PR
9 Victoria Street
Aberdeen
Telephone 01224 646491
Direct Line 01224 654085
Mobile 07780 680751
Email swallis@trickerpr.com