Moves That Can Sink or Save Your Business

Question:  I love running my own business. But there's little room for bad decisions. It seems that big companies can bungle things and still recover. We can't. What avoidable mistakes commonly cause small companies to crumble?
 
Answer: Most business owners are just like you. In a survey conducted earlier this year by the business software firm Intuit, more than four out of five (84 percent) said they're happy running their own show - up 12 percent from a year ago. A similar number would do it all again, and 75 percent would encourage others to start a business of their own.

But that happiness is tempered with concern over the economy, competition from big business, keeping up with technology, adequate cash flow and a general fear of missteps. Every year, tens of thousands of business owners find themselves sinking financially. Commercial Credit Counseling Services, Inc., a national firm that helps financially struggling companies recover, reports record numbers of inquiries from firms trying to stave off bankruptcy.

Most businesses that stumble do so after a series of missteps, rather than a single blunder. They can become blind to chains of mistakes that ultimately lead to disaster. Here are some moves that can help you avoid mistakes that other businesses have made:

Keep lines of communication open. Entrepreneurs should promote a culture of internal information sharing - both good and bad, says Robert Mittelstaedt, Dean of Arizona State University's Carey School of Business. "Train your people to ask for help early rather than hoping mistakes will slip under the radar," he says. "Fear feeds mistakes."

Don't deny the data. "Failure to believe information that's staring you in the face is a common cause of catastrophe," says Mittelstaedt. Ignoring bad news and warnings, or hoping they are temporary, causes mistakes to grow.

Listen to customer complaints. They are a valuable early warning system. Make sure customer feedback reaches you quickly.

Quash conflicts quickly. Conflicts with partners, vendors, investors, clients or employees that spiral into litigation can sink a business. Successful businesses learn early that there are greater profits in peacemaking, notes Doug Noll, a business mediator in Santa Barbara, CA.

Update your financial and IT systems. "Business owners faced with tight deadlines sometimes delay updates to key financial and IT systems," says Paul McDonald, Executive Director of Robert Half Management Resources, based in Menlo Park, CA. "But putting off key projects can result in lost time, money and productivity."

Establish standard procedures to address trouble. Even in a very small business, confusion over who's in charge and what to do when there's a problem can magnify mistakes. Establish rules and hold people accountable for following them.

Encourage others to speak up. Everyone should be encouraged to speak up if they believe the business is making a mistake. Help each employee feel responsible for the overall success of the enterprise.

Measure yourself against the competition. Stay abreast of news and developments from similar firms in your industry or area. You'll avoid being blindsided by major moves. Ask clients and business associates how they feel your business measures up to the competition.

Don't take good employees for granted. High turnover and the departure of valued employees can accelerate troubles. Rewards and recognition - even small gestures - go a long way to keeping your best people around. Treat new hires with care. Provide a mentor, if possible.

Establish anti-fraud checks and balances. Thieves in the henhouse sink many small firms. "While small businesses aren't required to perform internal audits, many bring in outside financial experts for occasional checks and balances," notes McDonald, of Robert Half.