Often we see business owners in trouble, having received some bad advice in the past. Below are a few examples of what not to do (and how directors can learn from them).
Try to be all things to all people
Selling a variety of different products and services to different target audiences does work for some businesses but for many it can lead to financial problems. Spending all hours on launching, promoting and marketing various products leaves little time to work on business strategy and accounts.
Without a defined target audience to focus on, the brand may suffer by appealing to no one in particular. Unless there are clear strategies in place for innovation, making one or two products the best they can be for the customer will benefit the business more than making ten mediocre products. Ensure the business has the resources and budget – don’t innovate for the sake of it.
Keep borrowing money to pay off business debts
It sounds obvious this is bad advice but businesses continue to apply for loans left, right and centre to cover up their financial problems. Often there’s a notion that the next big contract or sale is right around the corner and this loan is plugging a gap until working capital is available. Rarely this works.
If the business can’t afford payments, like VAT or PAYE when they fall due, then a restructuring plan should be put in place. Ignoring the real problems could make the situation ten times worse later on.
Forget marketing, focus on selling
While selling makes the money for the business, marketing provides the opportunity for the sale. Businesses often shrink the marketing budget in a bid to save money and cut costs. However, marketing and PR campaigns are vitally important for bringing in the customers. With little promotion of products, there will be fewer people to sell to, and therefore fewer sales.
Be cheaper than everyone else
Selling the cheapest product or service won’t necessarily get you the most profit. If the product is unique and delivers on value, the customer would be willing to pay more for something they can’t find anywhere else. Of course, this won’t work for everything but it’s worth keeping in mind when deciding on price. You must be able to justify why your higher-priced product is worth more than a competitor’s.
Sign up to every social media platform
This will only waste time and effort. In most cases, using just a few platforms will bring results. Trying to promote a financial services firm using mainly images on Pinterest could prove difficult. However, a retailer could find this the perfect place to promote a new range of clothing. It all depends on the product or service and the marketing goals.
Continue to draw dividends no matter how well your company is doing
When business is booming, dividends on top of a director’s salary is the norm as this comes out of the company’s profits. However, it’s a mistake to think taking dividends is fine when the company is doing poorly.
Usually, the director will take dividends each year and pay tax to HMRC for this ‘reward’. It is taxed at a lower rate in order to incentivise directors to make a profit.
However, if there are financial problems and the company becomes insolvent, continuing to take dividends is essentially taking money that isn’t there. Because there is less money available, the tax is now higher and the director starts to owe HMRC money, gradually building up debt in an Overdrawn Director’s Loan Account (ODLA).
Anna-Lisa Searle writes for turnaround and insolvency specialist firm KSA Group, and is a contributor to http://www.companyrescue.co.uk/