Running a business is risky business, but how do you deal with risks that you don’t even know exist?
Former US defence secretary Donald Rumsfeld once summarised the problem of planning in the face of uncertainty in his famous phrase “unknown unknowns” – things that can have a big effect on us that we don’t even realise we don’t know about.
Once you’ve realised that the map to your future has gaping holes in it, what should you do?
One option is risk assessment. This can be as simple as just writing down a list of all the risks you can think of and then getting people you know or expert friends to suggest others.
Unknown unknowns will always be there, of course, but by listing your risks you reduce the number you haven’t thought about. And simply stating a risk can sometimes help alleviate it, too. For example, in the recent Facebook IPO, the company stated its lack of revenue from its mobile product as a huge risk to its business. Simply making that risk well known is likely to create the concern and attention among Facebook’s shareholders and staff that is needed to actually mitigate the chance of it being a big problem in the future.
Another great idea when tackling unknown risks is to employ the right people. After all, you cannot control what the future will bring, but you can certainly affect which people will be around in your business to deal with it. Having the right staff can mean employing people who can act autonomously, because one risk may be that something happens to you, the business owner.
It might mean getting people with the right skills – so that you’re not the only one in the firm who can perform a certain function. While youth and energy are often ideal qualities in a new hire, future problems might trouble a young traveller much more than a seasoned explorer.
One final tool that is often employed is to turn future unknown risks into something a bit more manageable is business insurance. After all, you may not be able to conceive of all the problems that may confront your business, but the chances are someone has had to deal with them before and that they will be covered by some of the more general terms within an insurance contract.
Whatever risks your business faces, don’t lose sight of the fact that the unexpected can bring good as well as bad. After all, who’s to say that alongside the future risks you face, you won’t also find rewards you weren’t expecting, too?
Barney Jones works for XLN Business Services
Life as an entrepreneur is always a learning process, and you won’t grow without taking risks. Sometimes, you need to trust your judgement, but there are some mistakes you can avoid altogether. Here are 10 common mistakes you need to avoid.
Don’t neglect to provide a detailed business plan showing your projected outgoings and earnings. You may have a great idea, but this is not a business plan. Investors may be intrigued by your ideas, but they will want cold, hard evidence of their viability.
Make sure you’re specific when advertising. Know what your unique selling proposition is and target a specific market rather than trying to be all things to everyone. There are hundreds of, say, interior decorators, but if you have a speciality in, perhaps, decorative paint effects, use it as a USP.
Don’t have hundreds of business cards and brochures printed. They go out of date very quickly and can be expensive to produce. If your contact details change, the cards and brochures need to be amended.
Be careful whom you hire. It may seem like a good idea to get friends or family involved in the early days, but if they don’t have the qualities you really need, it will impede your progress. Identify the mix of skills you need and look for people who can provide long-term value to the business.
Avoid expensive websites and domain names. You could even try building your own business website using one of the popular DIY solutions, you might even know someone with more knowledge who could help you put together your own website. Don’t clutter up your website with information customers don’t really need to know about. Instead, tell them how you can solve their problems or provide them with things they need or want.
Don’t neglect planning and research. These are vital in ensuring the viability of your business idea, and a frequent cause of failure is not spending enough time finding out whether there is genuine demand for what you sell. Your pricing must be competitive and capable of providing a viable return.
Try not to set your sights too high, because inaccurate forecasting of market size is a common mistake for start-ups. You will need reliable cashflow and income projections to avoid expensive mistakes such as over-staffing, purchase of unnecessary equipment and lavish business premises.
Beware of the dangers of over-trading, which happens when you take on more orders than you can comfortably fulfil, or that can be supported by working capital and net current assets.
Make sure you have good practices to avoid tying up your capital as a result of poor stock control. Efficiency here means you have the right amount of stock in the right place at the right time – instead of the chaotic opposite.
Never take your eyes off the competition. You’ll need to respond to your competitors continually, so you need to remain aware of what they’re up to. To wrongfoot them, you could introduce new products or services. Always try to outperform your competitors. Find ways to be more special that they are.
Have you got any tips to add or any stories to share? We’d love to know what you think…
Liz Madden works for Champion Accountants
Research commissioned by British bank Aldermore suggests that laziness costs the average Brit almost £17,000 over the course of their lifetime, because too many of us have become used to taking the easier option.
Chief examples of laziness, says the report, include driving rather than cycling or walking; going to the local car wash instead of getting a bucket and sponge and doing it ourselves; putting off canceling direct debits; and not bothering to get a refund on unwanted clothes we have purchased. Almost half of the 2,000 people surveyed said they’d rather pay someone to take care of boring tasks, such as cleaning the windows, than do it themselves.
According to Aldermore: “The average Brit could save £52 a year by cancelling pointless direct debit payments. Washing [your] own car would save £68 a year and cleaning [your own] windows £72 a year.” One in three never bothers to turn off appliances at the wall, while one in ten books more expensive train tickets because they can’t be bothered to look for cheaper alternatives. 10 per cent of respondents also admitted they could cancel gym membership they don’t make use of.
Laziness can be a significant problem in the workplace, too, of course (which reminds me of the old gag – “How many work at your place?”, “Oh, about half of them…). Although published in the US a few years ago, this infographic provides much food for thought for employers.
Based on stats gathered by Online MBA, it suggests the average US worker fritters away three hours every eight-hour working day – and that doesn’t include lunch and other scheduled breaks.
Chief workplace distractions include: surfing the web (44%, amounting to as much as 18 wasted hours per employee per week); socialising with other workers (23.4%); daydreaming (3.9%); and applying for other jobs (1.3%).
Older members of staff and those less well educated are significantly less likely to skive, while 77 per cent of those surveyed admitted to looking at their Facebook pages during work hours (39% said they would quit their jobs if Facebook was banned at work), while 60% made personal online purchases at work.
Key reasons why staff said they wasted time at work were lack of work (33.2%), feeling underpaid (23.4%) and being distracted by colleagues (14.7%).
Well worth a read is entrepreneur Andy Yates’ recent piece for ThisIsMoney.co.uk on how time is often wasted in offices and how it can be remedied. “The real question businesses need to ask about time-wasting is – why are employees doing it in the first place?” stresses Andy. “Unchallenging work, poor management and motivation are all common problems. Just think how much more any business could get done with a productive workforce.”
With Britain recently exposed as Europe’s third laziest country, buoyed by the nation’s phenomenal Olympic success, maybe it’s time we all became a little less lazy at work and home.
Visit the Law Donut to find out how to draw up an internet policy for your business.
In this day and age of cloud computing, mobile apps and so on, the spreadsheet really has had its day when it comes to your accounting system. Why? While it may seem like a very cheap or free option, using an accounting spreadsheet can severely limit your options.
There are a few danger signs to be aware of and it’s not something we often recommend our clients do at all – especially given the many free or cheap cloud accounting solutions out there that offer so much more than a simple spreadsheet can ever do.
Here are my top five reasons for kicking your spreadsheet into touch and updating your accounting system…
1 Why reinvent the wheel?
There are so many professional accounting systems, why spend time inventing your own and having to update it as your business grows and you need more functionality?
2 Less chance of mistakes
If I had a pound for every spreadsheet I’d been sent that didn’t add up .... Yes it can happen – someone changes a formula, adds a cell, overrides a calculation, etc. Even when the sheet has been designed and provided by an accountant, it doesn’t mean mistakes can’t happen.
3 Better control
Are you in control of all aspects of your finances through your accounting spreadsheet? Does it tell you how much your turnover is, what profit you have made, what your cashflow looks like, how much tax you must pay at the end of the year?
4 Room for growth
As your business grows and you need more from your accounting system, will your spreadsheet be able to provide it without additional effort, set up, formulae, etc? Will the accounting spreadsheet hold you back and result in more of your valuable time being spent on bookkeeping and basic accounting tasks, when you should be focusing on growing your business?
5 Added peace of mind
How often do you back up your PC? What if your PC gets stolen or breaks? Is your PC the only place that you can access your accounting records from? Food for thought, when keeping your accounting spreadsheet on your local machine.
And finally ....
Make sure your accounting system is a 21st century, fit-for-purpose solution for your business.
A common way to encourage customers to buy from your online store is with reward schemes. Many of us already use loyalty cards or vouchers when shopping in supermarkets to collect points and redeem them for a few pounds off a future purchase. Everyone benefits: the regular customer feels they are valued and retailer gains more repeat business. For every free drink someone is enjoying at their favourite coffee shop there are many customers with a loyalty card that have some, but not sufficient, stamps to gain a reward.
Bigger retailers also gain a huge amount of statistical data to understand customers’ shopping behaviour better.
You can do it too
The good news is if you are a small online retailer you can also set up reward schemes. For example, loyalty programmes that show customers you appreciate their business.
If you decide to implement a loyalty programme, make sure your ecommerce platform offers this functionality as standard. That way you don’t have to use third-party software – or worse still, develop an app that might never fully integrate with your back office. Then you need to consider the following:
However, loyalty programmes aren’t for everyone. If your business offers consistently low prices and great service, such a programme may not be necessary. It's a long-term commitment and it is likely to be at least 18 months before you start to see a return.
Tell a friend
Another way to gain new customers and build relationships with your existing ones is to offer a referral scheme. This incentivises customers to promote your products and your business. You are much more likely to make a sale if you are recommended by someone who is a trusted source.
If you get a sale as a result of a recommendation, say thank you and send a reward in return, such as a discount that can be used when placing their next order. Your customers’ friends could also receive a one-time referral discount.
It’s a win-win situation. What else could be the most cost effective way for promoting your company?
For the majority of SMEs, offering trade credit is essential, but it leaves you vulnerable to debt. Are you often left wondering how much you really know about your debtor when they go beyond your agreed payment terms?
Generally, you’ll know how much they owe you and you should know their trading address, but when a company owes you money you want to know everything about them.
This year, in May, ICSM had to write off almost £100k worth of debt on behalf of its members, many of which could have been avoided if the correct company or debtor identities had been known.
If your business offers credit, you should have a robust credit management system in place. This starts with getting your customers to complete a credit application form. You’ll need to ensure your form collects all the information needed to set up a credit account. You need to know:
Offering credit to non-limited companies has its own implications and it’s important to remember that the liability of any debt incurred by such a business will fall directly on the proprietor(s). Before even considering offering credit to a non-limited company (ie sole trader business), you’ll need to know the owner’s name, date of birth and address, which will enable you to credit-check them. To do this you are legally obliged to gain their permission, so it’s important to include a paragraph in the form requesting consent to run the credit check.
Try to avoid allowing your people to ‘pre fill-out’ the credit application form on behalf of your customers. It will only result in words being crossed out, mixed handwriting and you receiving incorrect information. Your customer should fill out the entire form, not just sign it. It might add up to two minutes onto their day, but it will save you a lot of hassle.
Christopher Moore is a credit management consultant at ICSM Credit.
In these challenging times, those who stand out with innovative ideas and approach to business are much more likely to succeed.
Examples of business innovators include entrepreneur Sir Eric Peacock, founder of Babygro, who installed video camera booths in the office to encourage his employees to comment on business ideas.
When coming up with ideas, Walt Disney set up three distinct rooms. One to create the most fantastical ideas he could; the second to re-examine those ideas from a practical point of view; and the third to shoot holes in the ideas he came up with.
So, how can your business boost innovation and improve the bottom line?
To help firms get the most out of their ideas generation sessions and generate useful ideas, Professor Dominic Swords from Henley Business School has teamed up with Orange to develop a seven-step plan to creating great ideas. The plan reveals secrets used by the world’s most innovative businesses, including 3M, Diageo and Bupa.
The seven-step plan covers everything from how to conduct ideas generation sessions and get the best ideas out of your team to – most importantly – how to implement these ideas to benefit your business.
The Creating Great Ideas plan was put to the test when Orange invited three small businesses to take part in an ideas brainstorm on the London Eye. Watch the 7 Degrees of Innovation video here. You can download the seven-step guide here.
We normally write an article for the summer break with suggested books for you to consider when you are re-charging your batteries. Due to the weather, we forgot it was summer.
In some ways that is good news as the weather will keep you inside with lots of time to read a good book. Under the blankets with a nice cup of hot tea, in front of a nice open fire. Outside the cold wind is blowing and the rain is clattering on the windows…
What to recommend?
Now that the scene is set, what books would we recommend? It is always interesting to look back at the books we covered with our clients and the books we reviewed for Newstalk radio. Are there any new themes or common threads? What are the key questions? What is the must-read book?
One theme stands out. Last year there were very few books on innovation. For the last six months, it has become a hot topic — both in books and for our clients. As an optimist, I think that is a sign of economic recovery. Companies are planning ahead for the next big thing. The books that we would recommend are The Innovator’s DNA and The Wide Lens. Creativity can be taught and do not ignore your innovation ecosystem (which is wider than you think).
Gamification is HOT. The book to read is Reality is broken. This is a must-read because it touches on so many other books and themes, including innovation (applying collective gaming principles to solving problems). It touches on The Shallows (computers and the internet are creating pancake minds, so your design and user interface needs to be compelling in split seconds), The end of business as usual (social media, rapid customer feedback, engagement and digital Darwinism) and A whole new mind (passion, creativity and the end of the current education system).
The world of work and how it is fundamentally changing is a theme and it cuts across culture, talent, technology and social media. The book to read here is The 2020 Workplace.
Come to think of it, fundamental change is the overriding theme. Every book we have suggested hits that theme, one way or the other. Smart customers, stupid companies, Megachange: The World in 2050, Out of our minds, Flash foresight and Everything we know is wrong are but a few examples.
Out of control
Maybe that is why innovation is such a hot topic. We think that by focusing on innovation we can control what is coming. We can’t. Which brings me to the last theme. In Thinking fast and slow, Daniel Kahneman explains that we are constantly fooling ourselves and are self-delusional most of the time. It is the way we are wired. That includes a lot of companies. They know change is coming, but remain boiling frogs. Soon the water will be boiling.
The key questions
So what questions should small business owners be asking themselves?
While the elements wreck havoc outside, the books we highly recommend are Smart customers, stupid companies and Reality is broken. I was going to close with “enjoy the summer”, but that is just rubbing salt in the wounds.