In business, not everyone makes it big. According to the Bureau of Labor Statistics (BLS), at least 20% of new companies won’t make it past the first year. By the fifth year, that percentage will climb to 50%. Within 10 years, the failure rate will already be 70%.
But what sets apart the successful ones from those that will eventually close? The latter may be committing the following grievous mistakes:
1. Poor Cash Flow Management
One of the most common reasons companies fail to thrive is the lack of funding or capital. More often than not, though, it’s not because they lack the resources or financing options. Entrepreneurs may need more knowledge on cash management strategies in business.
Profits and revenues are different from cash flow. A company may declare high profits and sales but still lack the available assets for growth because of mismanagement. For example, it could have raised its equity and lowered its liability only if it would sell its idle inventory or equipment.
One’s decisions can also affect cash flow. These include depending too much on financial statements whose data are usually not available in real-time. By the time they try to manage their cash flow more effectively based on the numbers, the company might have already suffered huge opportunity costs.
2. Underperforming and Disengaged Employees
Picture a business as a ship that needs a captain, who’s the founder or the business owner, and the crew, who are the employees. Without the other, the vessel would not have moved. However, if a part of the crew members would fail to perform well, the ship won’t likely get to its destination. It might even sink.
This can be the situation if the business chooses to keep underperforming and disengaged employees. Disengagement is not stress or burnout. It is the conscious withdrawal from activities or the organization itself.
Disengagement, which can appear in many forms like habitual absenteeism or wasting of company’s resources like time, is extremely costly. According to Gallup, it costs the US economy over $300 billion annually. It may be equivalent to almost 35% of an employee’s yearly salary or close to $3,500 for every $10,000.
That’s not all. Disengagement can be contagious. An actively disengaged worker can encourage others to feel the same.
Keeping the employees engaged requires multiple approaches. These include providing attractive benefits, offering opportunities for growth, and promoting collaboration. But those who don’t improve despite these definitely have to go.
3. Poor Entrepreneurial Mindset
Many studies already show that millionaires or high-income earners are a different breed from the rest of the population. Take, for example, their mindset.
In his book The Top 10 Distinctions between Millionaires and the Middle Class, author Keith Cameron Smith shared that millionaires always think long-term or determine the big picture. According to him, the wealthy may likely brainstorm about how to double their income each year instead of how to pay the expenses monthly.
Wealthy people also believe in delayed gratification. They are willing to put in the long hours and live in a cramped apartment for years if these will mean they can transform their enterprise into a Fortune 500 company later.
However, they also know how to invest in themselves. Many rich businesspersons are incredible readers. Bill Gates, for instance, is said to read at least 50 books a year. Most do it for leisure, but the lessons can help them in running their company in many ways.
Meanwhile, if an entrepreneur fails to adopt the millionaire mindset, they may not achieve the growth they want.
Here’s a Possible Solution to All These Problems
To be clear, resolving all these three unique but costly business mistakes involves a variety of methods. But one of the possible solutions is proactivity:
- When it comes to cash flow management, be on top of data. Learn the skills on how to make critical decisions without having to rely solely on financial statements. Maximize the available information, which can be massive.
- Get help when necessary. According to financial psychologist Dr. Brad Klontz, wealthy people succeed because they learn to reach out to subject-matter experts. In contrast, those who belong to the lower socioeconomic group are likely to do much of the work by themselves.
- Learn—and learn some more. Entrepreneurs need to treat their industry as one big school. If they want to progress, they need to study. They need to know why established companies are successful, how their competitors are doing, and the latest trends and technology. This way, they are more open to adapt to changes, innovate, and develop the millionaire’s mindset.
Entrepreneurs are bound to make mistakes, but they have to avoid the costly ones that can sabotage their efforts.