Gavin Reddy, Business development Manager within the Strategic Business Development Unit of Sanlam Life Insurance Limited gave a passionate and frank talk at the Sanlam SA Fashion Week seminar this weekend about the common mistakes that lead small businesses to fail.

Gavin Reddy has been involved with Small to Medium sized business enterprises (SME’s) for the past 14 years and is currently holds the position of Business development Manager within the Strategic Business Development Unit of Sanlam Life Insurance Limited . He has also served on the Board of Directors as a Non-Executive Director for Creda Communications (a 54 year old company). Of these 14 years, 7 years were spent in his own business as an entrepreneur and a business adviser both locally and internationally in countries like Japan, Germany, Italy, the USA , Canada, Malaysia and Australia on behalf of South African clients in the areas of electrical & mechanical engineering, manufacturing , marketing and importing . He is active in trying to assist SME’s with the challenges they face through his business counselling interventions.

With all of this experience at his disposal, Gavin gave a passionate and frank talk about the common mistakes that lead small businesses to fail.

"Before you even start to think about a business, you need to understand yourself. Do you have the right attributes to be an entrepreneur?

Ask yourself: Who am I? Where am I going? How? And with what?
With the answers to these questions you can create your roap map. With a road map the journey from beginning to success is easier to achieve. It gives you direct goals, methods for achieving them and will keep you on the right path.

There are a few common mistakes that small business owners make when starting:

1. Pride before the fall

So many start a business because they believe they will be millionaires by the end of the month or year. Their focus is on what they will spend their riches on and not the business itself. They get so excited by this fantasy that they fail to do their research properly and plan.

Being in a business requires passion. You need to live and breathe it. In order to fully understand the enterprise you are planning on creating, do thorough research. Speak to as many people as possible. Find out what the common, everyday issues and problems are. Spend practical time in the kind of business you want to start. Do an internship for a few months. Find yourself a mentor. Learn from your own and other's experience.

Draft a business plan or a road map to keep yourself on the right path. The business plan should not be a convoluted document filled with legalese. You need to be able to understand and follow it. Ensure that you cover finances, marketing, human resources and operations.

2. Naïve to think that business is as easy as pie

Running a business is not a skill we are just born with. We have to learn that skill. So there are a number of elements to business that we can naively overlook. The most important of these is the regulation of your business relationships.

Business is always about business and business affects behaviours of people in different ways. We can't always anticipate how someone will behave but we can document what is acceptable or not. Don't think that family or friends, no matter how familiar, make good business partners. It is preferable to not have partners, but if you absolutley must get a professional to create legal documents that delineate the roles, responsibilities and liabilities of all the players. Don't sign any document unless you have had a professional look over those documents with a fine tooth comb and they have then explained to you all of the obvious and the not so obvious consequences of your signing. Many small businesses consider professional contract management to be an unnecessary expense, but it can save your business and your pocket in the future.

When you are planning on selling stock, go directly to the end user. Consignment floor stock is a no-no. You take all the risk, while the retailer takes most of the profit. The store requires a certain amount of stock to fill the rail, but often stock is returned unsold. Payment for sold stock can also take up to 3 months. When you combine late payment with huge capital outlay, you can end up with a serious cash flow problem.

Be in control of your own destiny. Meet people. Network. Business is about relationships.

3. Knocking my head when I just can’t afford to

Most retailers lose money through theft and mismanagement by their staff. Blind trust of employees could set yourself up for disaster.

Know the credit rating of your clients. Don't start your business on promises. Black and white contracts are the only promises to consider.
Speak to people in the business and find out what the realistic cash flow issues are. Don’t buy things on credit. Save. Create capital. Use you own money to build up your business. Have a salaried job while you build your business. That way your bills are paid for and you can use the profit from your business to grow you business. Don't splurge your profit on cars, ipods, shoes or parties.

4. Thinking and knowing are two different things

Thinking is an academic thing. Knowing comes with experience. To really understand your business's chances of succes you need to fully understand the market conditions, both on a micro (small/local) and macro (big/international) scale. Find out what is happening around you. Not just in the industry you are interested in. Your business could be influenced by a number of factors. Learn about what your competitors are doing.

Money can not be made without hard work. Let me repeat that, money can not be made without hard work. Get rich quick is a fantasy sold by second rate authors, pyramid scheme developers and other scam artists so that they can get your money. There is no quick and easy route.

Be patient. Start small. The tortoise always wins the gold.

5. What was I thinking?

Do not leave your business success to someone else. The two main reasons why businesses fail are business owners don't learn how to manage their own finances and their business relationships are not contracted. Do not think that just because you are a creative that you cannot learn about financial management. If you want to run your own business you had better learn. Do an evening class, buy management books, find someone to teach you. If you are serious about your business you need to understand all aspects of it.

Look at your business as if you were planning your wedding. These one day events require massive planning. You want to have control over all the details. You stick to your guns and are passionate about the manifestation of your dream. With this and all that has been mentioned before in mind, you can build and grow a successful small business."



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