In challenging economic times, businesses face a multitude of hurdles: payments become delayed, credit tightens, fundraising costs rise, and sales slow down. In such a scenario, it’s crucial to not only know what actions to take but also to be aware of the missteps to avoid. For small and medium-sized enterprises (SMEs), the most pressing concern is that liquidity could dry up. Are your growth strategies aligned with this reality? Here are five common mistakes that can seriously impact your business—and how you can steer clear of them.
1. Falling into the Trap of Wishful Thinking
One of the most damaging errors during uncertain times is falling into the trap of wishful thinking. When decisions are based on what we hope will happen rather than on rational analysis, facts, and sound judgment, it sets the stage for potential disaster.
It’s easy to get caught in this cycle. Your financial projections look optimistic, your presentations are impressive, and your business plan shows robust growth. It all feels very satisfying—until reality hits. Consider this typical example:
- Your Plan: Increase sales by 10%.
- Your Wishful Thinking: “The sales team will surely achieve this.”
- Your Assumption: The team is both motivated and capable of achieving the target in the current market.
- Your Result: A significant gap between projected and actual sales.
To avoid this, consider grounding your expectations. Either set more achievable sales targets or provide more direct guidance to your sales team. By making decisions rooted in the current market situation, you’ll gain more control over your business and achieve more predictable results.
2. Relying on Faulty Thumb Rules
Many businesses operate on simple “rules of thumb” created on the go. However, if these rules are flawed, they can lead to repeated mistakes.
Take, for example, the concept of gross margin. Let’s say you know your gross margin is around 22%, and a client asks for a 10% discount. Needing the sale, you agree, thinking you still have a comfortable margin. Unfortunately, most businesses don’t track these sales carefully to determine whether they were truly profitable.
A common mistake is misclassifying expenses, leading to an inaccurate gross margin. For example, a landscaping company once believed its gross margin was 43%, but this was based on categorizing worker salaries as fixed overheads. When salaries were reclassified under “cost of goods sold” (COGS), the real margin was revealed to be only 18%. This realization led to a new policy of limiting discounts to 5%, significantly improving profitability.
Here are three steps to avoid relying on faulty thumb rules:
- Re-evaluate your expenses and reassign them to the appropriate categories, like COGS.
- Create a revised operational expense (OPEX) sheet.
- Make informed decisions based on the adjusted gross margin.
3. Obsessing Over Topline Growth
An excessive focus on increasing sales revenue (the “topline”) can often lead to neglecting profitability (the “bottom line”). Consider a service-based business that aimed to hit a sales target of $200,000 per month to cover its $150,000 expense base. When it consistently missed this target, a deep dive revealed:
- The business could effortlessly generate $150,000 from repeat customers.
- 40% of its sales team wasn’t contributing.
- The aggressive sales targets were causing stress without delivering results.
The solution? Reduce the sales target to align with achievable volumes and cut the expense base accordingly. This pivot led to a dramatic turnaround within a few months.
If your business is stuck in a similar situation, try this:
- Identify achievable “low-hanging fruit” sales volumes.
- Adjust costs to support these attainable targets.
- Once stable, focus on innovative ways to boost profitability.
4. Ignoring Cash Flow Bottlenecks
Every business has bottlenecks—areas that limit performance, cash flow, sales, profits, or even customer satisfaction. The key is to identify these constraints and find ways to break or optimize them, thereby boosting cash flow.
A common bottleneck for many SMEs is the constant battle between managing immediate needs and planning for long-term growth. Many small businesses operate in a perpetual state of chaos, never progressing to a more organized and sustainable level. Moving from a chaotic state to a more repeatable process allows for more predictable outcomes and smoother cash flow.
To address cash flow bottlenecks:
- Map out your cash flow processes in detail.
- Identify poor practices, like delayed invoicing or weak follow-up on collections.
- Develop robust, repeatable processes to replace these bad habits.
5. Delayed Problem Recognition
Many companies don’t have a clear sense of whether they’re profitable on a daily basis. Without timely insights, small issues can escalate into significant problems. To prevent this, adopt a more granular approach to financial tracking. Here’s how:
- Track Daily Income: Quantify daily value produced, such as creating internal invoices.
- Monitor Daily Expenses: Break down expenses into daily figures.
- Use a Simple Spreadsheet: Populate it with daily income and expenses to see daily profit or loss.
By implementing these steps, businesses can gain real-time insights into their financial health, making it easier to navigate challenging periods and improve cash flows and profitability.
Conclusion
Avoiding these five common mistakes can significantly strengthen your business’s foundation, especially in tough economic conditions. By focusing on realistic planning, accurate financial tracking, sustainable growth strategies, and proactive problem-solving, you can better navigate challenges and build a resilient, thriving enterprise.
About the Author : Harry (Hemant Kaushik), Elite Global Advisor & Business Consultant
Harry (Hemant Kaushik) is an American global advisor and business consultant, renowned for his strategic insights and high-impact consultancy. He specializes in advising and coaching elite individuals, including business tycoons, world leaders, and top corporate leaders. His expertise has been sought by Presidents, Prime Ministers, influential politicians, CEOs, and industry leaders worldwide.
Recognized as one of the Top 10 Global Advisors and Business Consultants by PWC International, Harry has transformed the lives of thousands across more than 100 countries with his unparalleled guidance. He has also been honored as one of the Top 10 Life and Business Strategists, shaping the success of global business leaders and visionaries.
Harry’s influence has earned him prestigious accolades, including recognition by the CEO Times Magazine as one of the 10 Most Powerful People in Global Business Consulting, Business Times News as a Top 10 Business Consultant, and Business Weekly Times as one of the Top 10 Business Advisors in the World, offering consulting services to billionaires, celebrities, and high-net-worth individuals.
A Wall Street Times cover story famously dubbed him the “Elite Global Advisor & Business Consultant” for his deep understanding of business dynamics and leadership strategies. Based in San Francisco, United States, Harry is widely respected for his international economic expertise, market analysis, and strategic business acumen. His collaborations with global brands and corporations have positioned him as a thought leader, contributing to the business world through insightful articles on global economic trends.
Learn more: https://ceosadvisory.com
