I can’t believe they shut down?! What happened they were doing so well? So, where am I going with this?
A good business shut down and it didn’t have to be this way.
A couple months back we were impacted by hurricane Irma. Not as bad as those in Florida (I’m in Georgia) but enough to be inconvenienced. I was driving through my local downtown ‘square’ (the historic cute downtown area that holds a number of businesses) and I noticed that a very popular sandwich shop had shut down. I was so confused they always had a crowd and they had been around for a long time. They had a good reputation and you could smell them cooking their food each day and it smelled amazing. So, what happened?
They lost power, the food spoiled, they couldn’t afford to replace it so they went out of business.
You’re kidding right?!
This was totally avoidable
This is the dumbest reason ever for going out of business. Especially for a business that has been around that long. I could understand stagnant growth or profits sinking due to people moving more toward the big city. But, your food going bad?! I mean really?! I still hope I’m hearing it wrong like something else really happened but this is not uncommon. It is completely avoidable though. You just have to have some business savvy and you can avoid throwing all that money you put into your business down the drain. So, what’s the plan?
Not understanding profits
Many don’t understand profit for what it really is. Many will make enough each month to cover the monthly expenses and say it was a profitable month because they didn’t go into the red. No, they just broke even they didn’t profit. Some months will be like that but if every month is that you need to re-evaluate your business model. When all expenses are paid it’s good to have some left over at the end of the month. Especially if you are a newer business that means you have money to reinvest in your company.
Price to Profit
You don’t need to be setting your prices so low you only break even. Many will do that thinking they will make up for it in volume and that doesn’t work for all industries (grocery does it but even they profit). Research the pricing of similar businesses in the area that has been around a while. This will give you a look at what your customer base is willing to pay. Charge market value of your product or service. Don’t try to undercut the competition by making your starting prices lower. That is a terrible long-term strategy and you will never grow. It’s far more difficult to raise your prices than to lower them. You will lose customers by giving them a price hike all of a sudden. If they are willing to pay more why aren’t you charging more?
No risk contingency plan
Back to profits and reinvestment. Your business will have unforeseen disasters happen. A break-in can cause a huge loss of inventory. In this case, a hurricane can cause power to go out causing food spoilage. You must assume that the worst will happen, and have a plan for when it does so you are still in business the next day. For this business, a backup generator and insurance would have solved this problem. But, they had no profits to invest in those necessary items and now they are out of business. So, think about it for the bit. What is the worst that could happen to your business? How are you going the solve the problem and make sure you stay in business?
Not marketing your business
I can’t stress this enough. Just because you are a successful business does not mean you should not be marketing your business. You should be putting money into this. Once you are successful you may not have to invest as much but it is still a worthy investment even as a success. Manage your marketing strategy figure out what works best for you and document it. Have incentives for customers to tell you how they heard about you. Find out what works and take the ball and run with it.
Not having a budget
Well, where did all those profits go last month? If you don’t have a budget ‘I don’t know’ will become the answer to that question. You could have time, energy and money vampires that could be taking away from your business. Did you have an obscenely high water bill? You may have a leak on your property. High electric bill? What’s causing that? Instead of blindly spending money for the business look into every receipt. Nipping those in the bud each month will help you create more profit.
When you’ve made enough to cover all the bills great! When you stay there and decide you’ve made enough now you have a problem. You are not growing as a business. You are not prepared for if and when the competition comes to your town. Hey, I got paid today is not enough as a business owner. Now I’m not saying go completely outside your skill set here. But think what you can add to your business? Can you add t-shirts or bags with your logo to sell? A delivery service for a fee? What can you do to keep things fresh and stay in business
? You can easily read business publications in your off time. What new in your industry? What new trends are going on right now? What fresh idea do they have that you can improve upon? Business itself is growing and changing and so should yours.
Having a successful popular business go under for a completely avoidable reason is so unfortunate. It’s also dumb to have all that money go down the drain. Things will happen and business will shut down that’s a fact of life but they shouldn’t go down without a fight. This is your business that you love! You should fight for it! Get a good business foundation under you, and you stand a chance at winning the fight!