Four common business traps for small businesses

Joel Svensson

As a small business bombarded by information, it’s hard to know what opportunities you’re missing and what common pitfalls can easily be avoided. With a limited budget, most small companies can’t afford to make mistakes. With this in mind, we’ve rounded up the most common mistakes made by SMEs, as well as how to avoid them.

Competing on price alone

Trying to undercut competitors this way does two things: narrow profit margins, and attract misers. Unless you have an impeccable model for cost-cutting, having the loyalty of your customers rest on price alone can be a huge risk, since those customers are likely loyal only to their pocketbooks – and no-one else.

And if the rationale is to make up for poor margins in volume, it’s worth remembering that larger competitors will almost always have the edge in the volume game.

According to government statistics, over 40 per cent of SMEs that went bust over the 2012-13 period reported cash flow problems as the driving factor behind their failure.

Failing to network

Recruiting can be costly, but by keeping a strong professional network, it’s possible to have an ever-growing pool of potential recruits. For no cost but time, you can ensure that you never run dry of talented staff – without having to go through recruiting agencies.

Networking sites like Twitter and LinkedIn can be goldmines when it comes to retaining a pool of interested parties. While you do run the risk of hiring less-than-stellar employees (at least in the absence of a sophisticated vetting process), you also give yourself access to a larger pool, and will inevitably encounter eager, well-fitting talent.

Not managing cash flow

According to government statistics, over 40 per cent of SMEs that went bust over the 2012-13 period reported cash flow problems as the driving factor behind their failure. In addition, 33 per cent of owners whose companies became insolvent also admitted to keeping poor financial records.

Failing to keep the books in order is a common problem among those struggling to deal with the huge workload generated by self-employment, so having a good system in place is critical.

Recruiting can be costly, but by keeping a strong professional network, it's possible to have an ever-growing pool of potential recruits.

Only thinking short-term

Focusing on current projects or sales to the detriment of marketing efforts is a tempting way to deal a large workload. Unfortunately, this practice can lead to the dreaded “double-helix trap” – work dries up and marketing efforts resume, only to decline again when another commission comes along.

To avoid this financial rollercoaster, it’s important to always be generating new interest in your brand, as well as maintaining contact with existing customers through e-newsletters and social media.

Joel Svensson

Joel Svensson is a Melbourne-based freelance writer specialising in politics and business.

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