Three Mistakes Companies Make That Can Lead To Ruin
Every company is prone to making mistakes now and then. Most mistakes are a normal part of the process of learning and developing a business; most companies survive such mistakes without much of an issue. However, there are some mistakes that can lead a company to ruin.Small businesses are especially vulnerable to making mistakes that can, at best, cause serious financial issues and, at worst, end up in bankruptcy.
Read on to learn about the three of the most common mistakes that lead companies to ruin.
Ignoring customers is a major mistake for any company; unhappy customers are less likely to continue patronizing a company and are more likely to tell others to avoid it as well.
Hiring the wrong employees is a costly mistake for many businesses. Unskilled workers make expensive errors, while some employees flat out steal from their employers.
Failure to keep accurate accounting records can spell disaster for a company; accounting errors lead to costly mistakes that can eventually lead to insolvency and bankruptcy.
Customers are the backbone of any company. There is no success without a market and individuals who are willing to make purchases. Companies that fail to listen to customers tend to lose out on repeat business. However, worse than that, the mistake of ignoring customers – specifically, their complaints – is one that can quickly lead to a company’s downfall.
Customers using your goods and/or services are typically willing to provide feedback. If they’re happy with a product or service and a company changes it, they may be less likely to purchase the product or service again. However, if customers positively do not like something about a good or service being offered – and their complaints about it are totally ignored – they aren’t just less likely to buy from your company again. They’re also likely to spread negative reviews about the company.
People tend to get angry when they’re totally ignored, and they want to vent their frustrations. The last thing you want is them venting those frustrations to other people who are potential future customers for you. Unfavorable word of mouth can absolutely kill a company’s business.
You don’t need to heed every customer suggestion or request. However, it’s critical that you avoid the mistake of making customers feel like they’re being completely ignored. Completely disregarding customers tends to make them actively mad at your company rather than merely a little disappointed with it.
In order to avoid making a potentially deadly mistake, customer service should always be the primary focus of your business. Specifically, you should put a system in place to quickly respond to customer complaints. Even if a customer has nothing good to say about your company at all, you should still, at the very least, acknowledge their concerns or problems and thank them for their input. Sometimes, just politely listening is all it takes to turn a dissatisfied customer into someone willing to give you another chance to earn their business.
And, of course, don’t overlook the opportunity to learn from customer feedback on how you can improve your products or services.
Hiring the Wrong Employees
Unless it’s an incredibly small business – meaning it employs a staff of one – companies need to strategically hire employees.
Not all employees are created equal, and there are bound to be some employees that are better than others. It’s important, especially in the early stages of building a business, to make sure that every employee is both competent and motivated to help build the brand.
This is particularly true for small businesses because the number of employees that can be hired is so limited. That makes each individual employee much more important than is the case with a company that employs thousands. When your team only consists of three or four individuals, you can’t afford a single weak link in the bunch.
Lazy employees, those who don’t show up on time, or those who simply lack the necessary skills are a heavy financial burden, especially for a young company. Mistakes and errors made by employees who can’t grasp the basics can quickly become a huge financial drain on limited resources.
Worse than that, of course, are employees who are dishonest, whether they’re just sliding a few freebies to friends and family, or outright stealing from the company on a large scale. Employee error and theft are two of the leading causes of financial struggles when it comes to most companies. Especially for small businesses, they represent unnecessary expenses that can easily lead to total financial ruin and the need to shut the company down.
Failing to Keep Accurate Accounting Records
It’s wise to hire a professional to keep accounting records, even when your business is still small. Even the most mathematically skilled individual can struggle when it comes to proper accounting. For larger businesses, careful bookkeeping and accounting are even more important. There are simply many more expenses and revenues to keep track of, along with things such as tax issues.
If, when your business is just a small start-up, you make the mistake of thinking, “Oh, I can start following standard accounting practices later on, when I start really doing a lot of business” – the odds are that your business won’t financially survive long enough to get to that point of doing a lot a business.
If a company can’t maintain accurate records of everything from daily expenditures and inventory to sales records, its bottom line will inevitably suffer. It then takes time and money to have a professional comb through the available records to determine where errors were made and correct them.
When the numbers aren’t right, a company suffers. Small errors can be corrected. But if errors continue over a period of time, balancing the books may become next to impossible. Accounting errors tend to be compounded over time. For example, inaccurate record-keeping can result in costly mistakes such as over-ordering supplies, failing to deliver to customers on time, or poor cash flow as a result of not tracking accounts receivables adequately. Ultimately, not keeping up with revenues and expenses can spell total disaster for almost any company.
CFI offers the Financial Modeling & Valuation Analyst (FMVA)™ certification program for those looking to take their careers to the next level. To keep learning and developing your knowledge base, please explore the additional relevant CFI resources below: