Depending on the type of business you set-up, you could experience a number of challenges along the way and not just in customer late payments. How you handle those problems may show how you will manage issues that come up when the business is up and running. If you to do proper research, strategy and planning when setting up your business, you will likely avoid some common pitfalls.
When setting up your business, you may come across people or organisations that delay your progress. Some delays are manageable while others are completely out of your control. For instance if you learn that you need a special permit to run the business late in the planning process, you may have to push back your plans until the government agency reviews and approves your application. Always have a backup plan ready in case of these issues, such as a later date to open the doors of your business.
Lack of proper funding is a common reason businesses fail. A snag in the process of securing financing for your new company could halt your plans altogether. For this reason it is wise to take steps to seek and apply for financing early in the start-up process. Cash reserves to run your business and fund the first year of operations of your business may not let you to sustain day to day cash flow until the business can generate any real revenue. So make sure you get your personal financial matters in order and start saving well in advance of attempting to start your own business. Lenders and investors commonly look at the financial status and character of the business owner when evaluating the company for financing.
Issues regarding your organisation may also plague a prospective business owner. This issue is far-reaching because lack of organisational skills can negatively affect every step of the business setup process. Poor organisation may also affect the way other parties perceive your business concept in general. You can avoid problems related to lack of organization by consulting a business mentor, buying programs to help you organize and hiring help to help you with the process.
Some risks to consider when setting up a business:
1. Select a business structure that limits personal liability. Change your business structure from a sole proprietorship where you are personally liable for business operations to a corporation or limited liability company where you have limited liability.
2. Transfer risk to insurance companies by insuring against major risks such as damage to your facilities, product liability, injuries to customers or suppliers and death or incapacity of company principals.
3. Perform a risk analysis by evaluating the consequences of risky activities, the likelihood of the consequences occurring and the benefits of the risky activities. Avoid risk by not carrying out activities that have severe and likely consequences and low benefits.
4. Transfer the risk of activities with severe and likely consequences but high benefits to other parties. Create a new, independent company to carry out these activities or assign them to suppliers or partners.
5. Reduce risk from product failure and warranty claims by implementing a quality assurance program. Develop a system of reporting from customer service to identify problems. Structure the quality assurance program to document production tasks and product testing. Link the problems reported by customer service to specific failures in production or testing procedures and start corrective action.
6. Reduce risk of surprises in operating results by keeping accurate records and instituting effective controls. Put in place a system that limits who can authorize specific actions and how much they can spend. Implement a reporting system that gives you key information about company performance. Evaluate the controls and reporting system by comparing actual practice and performance to the control procedures and the reported information.
7. Reduce financial risk by managing your accounts receivable to minimize outstanding balances and identify poor credit risks. Implement credit and payment standards, specifying which credit scores and payment records are acceptable. Evaluate customer payments and ask for advance payment from customers who don’t meet the standards.
8. Reduce financial risk by keeping outstanding loans and financing needs to a minimum. Control growth at a rate that the company can finance internally. If the company can’t pay off some loans, replace short-term credit with long-term, fixed-rate loans.
If you have any questions, please do ask. Here to help you succeed!