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Dec 18


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Blunders You Must Avoid in Your Enterprise

Blunders You Must Avoid in Your Enterprise

Certain blunders should be avoided by entrepreneurs in the quest to stay afloat, perform and grow in an environment so bumpy for businesses, a few are:

  • Poor management of credit especially those granted by banks
  • Diversion of funds generated by the company
  • Wrong perception of the human capital
  • Lack of focus
Image: wealthresult

Image: wealthresult

Poor Management of Credit - This concerns principally the short, medium and long term loans/credit extended by banks and related financial institutions.  In truth, almost all businesses require one form of credit support or another at different times in the pursuit of business goals. The critical issue is the attention paid to the obligations entered into by the company and her directors in relation to the credit (the repayment at due dates), and indeed other requirements agreed to; for instance not to over-commit the enterprise in one way or the other.  Consider the common behavior of many entrepreneurs after obtaining bank loans. Many go to sleep practically, after obtaining the credit while some apply the related fund in extraneous purpose(s) far from the primary intentions.

The consequence? Inability to generate the needed cash flow to service the loan as agreed originally. Then the bank starts mounting pressure and things could many-a-time begin to fall apart. The best approach is to stick to the plan intended; apply the fund into the business, strategize and direct the enterprise aright. Diverting funds generated from the buoyancy created through the credit, due basically to indiscipline on the part of the business owners. Many entrepreneurs are so daring that they care less about the consequence(s) of not meeting the required obligations to the lender. Entrepreneurs should appreciate the position of lenders; they too are in business and would charge interest and compounded charges and at due dates. A loan not serviced is catastrophic.

Diversion of funds generated by the company - The reckless use of company funds for personal purposes. Consider the common use of the money generated from receipts (even when no one has yet computed the profitability status of the company or project). Many simply squander corporate funds on self aggrandizement programs - purchase of luxury items, travels, lavish parties, support for political agendas and so on. The enterprise thereby becomes de-capitalized. Capital indeed could be very difficult to build and even if you are lucky to hit ‘gold’ at sometime in the company’s life, such should be conserved since as is normal, the dry season would come sometime sooner or later.

Image: ndebted

Image: ndebted

How do you Perceive the Human Capital? How do you perceive your employees? Are they basically similar to other resources that you purchase in the market place?

Human capital should be appreciated as an extraordinary kind of resource. The difference from other production inputs stems from the special attribute possessed, since they certainly can individually and collectively change the status of other inputs within the enterprise.

Employers should appreciate the extraordinary capabilities of the employees, especially when they are very productive. In bizarre errors, some employers regard their employees as materials to be requisitioned for, paid the wages and be discarded when no longer required. You need to appreciate your employees, challenge them and extract the best of their contributions. This can be possible through paying attention to their individual circumstances, engaging them individually by discussing their situations informally. Sometimes you may invite them to lunch or dinner at which time official, unofficial, and personal matters are discussed. Such is closely related to the concept of 'Managing by Walking Around'. Take two or three of them out at a time and let them know that you care. The result could be amazing; for instance negative attitudes (where this exists) starts getting replaced with an amazing spirit of (unusual) commitment to corporate goals. For example, they begin to demand difficult terms, such as higher pay, loans/advances; You need to explain the company’s situation, so they appreciate that they would reap better conditions based on improved performance. However, they should indeed partake in the bounty of the enterprise brought about by their sweat, whenever the business performs well; as the adage goes, "shared pains should translate to shared gains". At the end, the philosophy should be, employer – employee partnership; the type that yields a strong and perpetual bond. 

Lack of Focus has led to low performance and business fall in many instances.

How many lines of business do you handle?

Do you regard virtually every business opportunity as desirable, and therefore, spread into multiple lines?

Of course any entrepreneur engaged in various businesses should be careful. Almost all successful entrepreneurs began with a single business line, and then become competitive, building strength at it before going into the next line of business.

Lashing in multiple directions certainly has its pitfalls. For instance, how far can you spread yourself into the various businesses? Yet your eye and personal involvement is very crucial for effectiveness to be achieved. You’ve hired the managers but managers do not often respond with the same alacrity as the entrepreneur. Moreover, spreading yourself thinly into many different (sometimes unrelated) lines can only reduce your effectiveness. Then consider the stress and the possible effect on your health.

Spreading the scarce capital thinly among many enterprises can also lead to poor performance. Why not deepen your activity in the business that you have chosen, excel in it, be competitive and become the very best in the industry. The above assertion does not however stop you from branching out into a closely related line where you indeed reap the benefits of synergy; you obtain 5 by adding 2+2 for instance through the sharing of overheads among two, three or more business activities. Entrepreneurs are therefore admonished to concentrate especially during the start-up, when your business is akin to a baby or toddler that requires intensive care. You need to be able to walk before being able to run otherwise you may fall.

Bioye Akinfolarin

Author – Comprehensive Enterprise Management


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