According to data by the Registrar of Companies, 388 companies were
dissolved between March and August in 2019 alone. Many more followed as
the decade came to a close.
Startups, as such, enter a...turbulent market where competition is extremely high and where lack of keen observance of rules would ultimately crush them. Here are some of the things, if observed, could ensure they remain relevant and compete in the wider market.
1. Avoid high debts
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There is always the temptation for companies to borrow hugely to satisfy their recurrent expenditure needs. However, in a turbulent market, there are risks associated with every investment, and even foray is not guaranteed to be a success. The recent auctioning of property for companies that have been unable to pay their creditors should be a warning to startups. Startups should live within their means, cutting unnecessary costs. Assessment of customers’ creditworthiness and setting of appropriate credit limits goes a long way.
Three golden rules of getting business loans
·Borrow only what you can afford to pay The amount you are allocating to paying off loans each month shouldn’t be more than 50 per cent of your net income. SEE ALSO :You are only as good as your team
If you are contributing more than that, your other financial goals will be affected. This can be a very costly mistake in the long-term.
·Pay expected monthly installments on time. (EMI) Skipping and delaying EMI payments can negatively affect your credit profile, which might make it harder to access other loans in future. Missing credit card payments can also leave you paying stiff penalties and a hefty interest on the unpaid amount. If for some reason you anticipate a delay in payments, inform the lender beforehand. For credit cards, always make sure you have enough to pay the minimum and roll over the balance
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· Keep the tenure as short as possible The beauty of long-term loans is that they have lower EMIs, which might make them less stressful on the borrower. However, the longer term also means that you will end up paying more in interest. Although you can enjoy tax breaks on long-term loans, the cost will still be high. Therefore, unless the money you will earn from the loan is more than its effective cost, long term loans aren’t a good idea.
2. Recruit a professional management team While most managers fail purely because they lack integrity and are of low ethics, some businesses flounder because people at the helm lack the expertise to run them.
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This especially happens in startups and family businesses where families are reluctant to let outsiders take control. Seek managers who have the experience and can handle the running of a business. 3. Formulate a good succession plan The wrangles that rock most family businesses start at the point where founders exit and the business heirs scramble for top positions. Logistical and financial decisions have to be reached, and this oftentimes becomes a huge hurdle for companies. The transfer of business rights could go to a co-owner, heir, key employee, outside party or a company (for a majority shareholder, the shares may be redistributed to the other shareholders). Craft a good plan that covers for possibilities of a changeover, details regarding the circumstances when a succession would take place and the market valuation of a company.
4. Mind your customers The customers are the chief reason every business is operating. Listen to their needs. Collect feedback. Recruit professional organisations to collect customer views for you. act on feedback. Do not ignore customers’ opinions, complaints, fears, and suggestions. Hosting a customer appreciation event and inviting them to freely give their views on what should be improved on in the business helps the business manage to adjust in the changing markets and maintain customer confidence. This in turn keeps the customers and that is the reason the business is in existence, in the first place.
5. Respect your partners and workers These are the shareholders (internal environment) and suppliers, creditors, consultancies, etc (external environment). Create a good professional relationship. Honour promises and deals, engage in communication, be transparent, show integrity and cultivate trust, offering referral incentives or taking your employees on a publicity tour to bolster their commitment to the course.
6. Understand laws and government policy This will help you survive in the market. Get the dos and don’ts in the industry and learn the laws and regulations that govern the industry. Learn about taxation in the business and choose to comply.
7. Observe market trends Do not ignore what is happening around you. Observe what competitors are doing. Diligently follow the market trends, the stock exchange variations, market reports, customer reviews and other informative sources that can tell about the market performance. Learn what the customer expects against what is being offered.
8. Manage cash flow Maintenance of cash reserves, determination of the business’ break-even point, keeping cash-flow spreadsheets and quick collection of receivables will ensure that the business does not reach the point of being cash-straddled and of collapse.
9. Be different To beat competition, bring to the fore what the others are unable to. You cannot beat competition if you are ordinary. Be the standout.
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