Starting a small or medium-sized business (SME) requires equal amounts of bravery, confidence, talent and a risk-taking appetite. Research out of South Africa indicates that for every two successful SME ventures, less than one of those will still be functional four years later.

 

“The risks of owning and running your own business venture are substantial, but the rewards are immeasurably worthwhile,” says Melody Redman, general manager of Budget Insurance Brokers. 

 

 “Although failure is not something an SME-owner particularly likes to focus on, addressing the common reasons before undertaking one’s own venture means less of a likelihood of experiencing failure oneself,” she adds.

 

There are some widely accepted key factors that, if not avoided, will harm a business and possibly even destroy it.

 

It is, therefore, vital for a new or prospective business owner to keep the following tips from Budget Insurance Brokers top of mind:

 

• Poor management - New business owners need to recognise what they do not do well and seek help to improve this.  
• Poor capital structure - News businesses often take on too much debt. Learning to pay careful attention to finances and keeping records of incoming and outgoing money is vital.
• Location - While a good location may help a struggling business to eventually prosper, a bad location could mean the end for even the most well-managed concern. Consider where customers and competitors are, as well as accessibility (is the area near highways and public transportation?).
• Lack of planning - Many SMEs fail because of problems with their basic business planning. This should be based on accurate, current information and educated projections for the future. Most of all, they should be realistic.
• Overexpansion - A leading cause of business failure is overexpansion, where owners confuse success with how fast they can expand their business. Experts urge focussing instead on slow and steady growth.
• Overspending - Small businesses often spend their initial ‘seed money’ before reaching a positive cash flow. It is vital to seek out help from those with a proven track record before making big financial commitments
• Lack of reserve funds - Being unprepared for volatility is a primary reason for failure. Uncontrollable costs such as electricity-rate increases, materials, labour and natural disasters must be considered.
• Poor execution and internal controls - Poor customer service, accounting controls, and overall employee incompetence can lead to failure in business. Establish protocols for how tasks should be accomplished and remain aware of accounting practices.
• Failure to change with the times - Central to an SME’s surviving and being successful is the ability to recognise opportunities and be flexible enough to adapt to changing times.  
• Ineffective marketing and self-promotion - Advertising one’s new business is vital, and can be done both cost-effectively and creatively.
• Lack of a website - If you have a business today, you need a website in order to avoid losing business to other organisations that have Internet presence.

 

“With the difficult economy taking its toll on South African small businesses, they need to know they are supported in their endeavours. This is why Budget Insurance has a business insurance offering that has been specially designed for SMEs.

 

“With the combination of Budget Insurance’s offering and the above-mentioned tips, there’s no reason South Africans cannot make a roaring success of their efforts and ideas,” Redman concludes.