5 of the most common mistakes SMEs make – and how to avoid them

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Small business consultant Francis Hooke tells you how to steer clear of the most common pitfalls

SMEs accounted for 99.3 per cent of all private sector businesses in Britain in 2017, according to the Federation of Small Businesses. This was an increase of 197,000 over the previous year.

With more people than ever starting businesses, surviving and growing in a competitive marketplace is more challenging than ever. Small business owners are ambitious and want their businesses to grow. Understanding which numbers to focus on, and what are optimal cash balances or margins isn’t common knowledge though.

Here are five tips on how to effectively grow your business and avoid some of the most commonly made mistakes.

Forgetting that cash is king

Poor cash flow management is one of the biggest contributing factors to business failure – let alone attempting to grow a business. Don’t have too much money tied up in stock, raise invoices as early as possible, pre-payments and milestone payments. Collect payment by Direct Debit if possible.

Undercharging

Undercharging is failing to value time, skill or resources correctly. Selling products or services too cheaply often leads to becoming a so-called “busy fool”. There is a strong correlation between our clients who charge premium prices and strong cash balances and margins. A strong cash balance makes it possible to safely invest to grow. No money often means no growth.

Getting too involved in delivering work

When businesses are launched, they often begin with the founder delivering a product or service. Over time the business grows and, generally speaking, other people come into the business to help. Sometimes business owners find themselves dragged back into day-to-day delivery. We find that this limits scalability and growth. This is sometimes described as working in the business versus working on the business.

Neglecting the pipeline

Some businesses deliver project-based work. Their services can be in high demand one month, and low demand the next. When you’re in the middle of one project it’s really important to remember to continue to work the pipeline, lining up the next project so that there is a continual supply of work in the months ahead. This is often a lot easier said than done.

No repeat business

If products or services can be delivered in a retainer or maintenance agreement format, then the business can benefit from a higher degree of predictability from one period to the next, and this tends to lead to more stable margins and cash. This allows individuals to make more informed decisions about how to invest to grow.

Francis Hooke is founder of We Grow Businesses