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Friday, 21 August 2009

The 8 Traps Causing Failure2

Trap 2 - Sloppy Bookkeeping

New operators often ask the question-What books should we keep? The question invites a short and concise answer. But it is the wrong question and the accountant who answers does disservice to his client.

The question is not-“What should we keep?”- but “What do I need to know?” The correct books meticulously kept are useless if the proprietor makes no use of the information they convey.

A poor record keeping system leads to serious problems in every aspect of the business from advertising to sales, from stock control to taxes.

A record keeping system should be easy to maintain and regularly kept to provide current information quickly.

The appropriate records will tell you a lot of things about your business that you will need to know! If it doesn’t you need to change it. Information unused is worthless information and a waste of time.

Trap 3 – Spending more than you receive

One of the most dangerous pieces of information that traditional accountants give is a ‘breakeven figure’ which tells you the level of sales which is just sufficient to pay expenses. But what good is that if the business is your only income producer? How will the business survive if you can’t pay the rent on your home or make mortgage payments or pay school fees?

A more meaningful figure is the sales required to produce the necessary cash to pay all your living expenses and your taxes.

Many proprietors don’t know that a growing business requires more and more capital to support it. Even if a doubling of sales does not require an increase in staff or equipment, it does require an increase in stock and debtors.

In most small enterprises this can only come from profits. It is seldom that the money in the bank today is completely available for spending today.

Often a shortage of cash is a symptom of other problems with the business, so your first move should be to your accountant.

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Trap 4 - Failing to Plan

Failing to plan is the single most common management trap among struggling business owners! Planning is very important for ‘Big Business’, but it is vital for the small firm because it hasn’t the resources to cope with any mistakes as does the large organisation.

Developing plans for your business isn’t easy - only necessary! We often hear the plea, ‘But it is impossible to accurately predict the sales in this business!’ And often they are right too!

But it isn’t necessary to be accurate in predictions and estimations if you monitor and adjust as you go. Nor are figures as important as the trends. So absolute accuracy isn’t necessary. A poorly prepared plan well maintained and adjusted as you go is a thousand times better then no plan.

Trap 5 - Dilly Dallying

The typical small business proprietor has too much to do. Surveys suggest that most small business owners work a sixty-hour week with some regularly doing over seventy. Does this sound like anyone to you know? So busy are they that they haven’t time for trivial matters and all time is spent on vital matters dealing with business management-right?- Wrong!

A trap for the unwary is to allow the business to run the proprietor instead of the proprietor running the business. Sometimes this a symptom of poor planning, but often owners fritter away their time on trivial matters doing insignificant tasks which staff should do while vital jobs are left undone.

A safeguard against this is to ask yourself several times a day ‘Is this the most productive thing I could be doing right now?’ And do the most productive task right now.

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