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5 Situations That Kill Businesses and How to Avoid Them

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Every successful business requires a lot of planning.  From market research to internal corporate structure, the planning stages of starting and growing a business can be quite extensive.  While this preparation is a key factor in the success of any company, there are a few things which far too many business owners neglect.  Planning for success and growth is important, but smart businesses are also prepared for the worst case scenario.

Situation #1: Disability

No matter what a business may do, if it has employees then it needs to consider disability insurance.  Accidents happen every day and they are not restricted to those jobs which would traditionally be considered dangerous.  Even in an office environment, for example, there is a potential for an employee to be injured (perhaps outside of their work activities).

When an employee is injured while on the job, the company may be personally liable for medical bills and worker's compensation payments.  This is why disability insurance is so vital.  If something like this should happen, the insurance will cover any bills and fees for which the company will be responsible.

In addition to insurance, a smart business owner will spend time on succession planning.  There is no telling who might be injured and it is entirely possible that this person is the business owner. 

What will you do if you cannot run your business - temporarily or longer term?  Do you have the right disability coverage to protect your income?  Do you have people who are trained and familiar with different parts of the business so they can be called upon to pick up where you left off?

Situation #2: Natural Disasters


One thing which can rarely be predicted is a natural disaster.  Regardless of where a business is located, there is the possibility of one natural disaster or another.  Whether it is earthquakes, floods, fires or tornados, these disasters can literally destroy a company.

This is why disaster insurance is so important.  It may seem unnecessary to pay for insurance for something which might never happen but, when it does, this insurance will be the difference between a temporary setback and total destruction.  Smart business owners need to know what types of disasters are possible and find insurance which covers them completely.

No, this article is not about promoting insurance. It's about making sure you have the protection you need to keep your business operating and your income flowing. 

While disaster insurance will help cover the financial aspect of such a catastrophe, contingency planning is equally as important.  Rebuilding a business can take months and work should not stop during that time.  A good business owner will have a contingency plan set up which allows the company to continue, even if an entire physical location was lost. 

When reasonable for the business model, redundant operations, back-up equipment, data back-up, and/or employees/contractors in other geographical areas are critical components to recovering from and/or minimizing the impact of a natural disaster.   

Situation #3: One Revenue Stream

One of the biggest mistakes many businesses make is relying too heavily on one customer or revenue stream.  Most companies will work with different clients and customers, but may rely on one specific client for the majority of their revenue.  The problem here is that the loss of this client can mean a sudden loss of the majority of a company's revenue.

Just as anything can happen to a business, the same can happen to clients and customers.  Relying too heavily on one specific source of revenue is a recipe for disaster.  Smart business owners will focus on diversifying their revenue sources and creating a situation where the loss of any one source only represents a small loss of overall income.

If you don't have the resources to handle more clients, create a client back-up plan.  What accounts or work-streams can you quickly put into action if you lose your main client? If diversifying pushes to outside of your production capacity, always have other work lined up to fill any vacuums.

Landing a big client may make you feel like you can take a break from marketing and customer acquisition.  But beware of this false sense of security.  Every day, dozens of businesses, from small to multi-national corporations, close their doors because they lost their main account.  Remember the old adage; don't put all your eggs in one basket.

Situation #4: Data Loss


We live in the information age and nearly every business relies heavily on stored data.  This can include, among others, payroll records, inventory systems, emails, documents, and even client contact information.  This data can be so important to the success of a company that the loss of it can be just as damaging as any natural disaster.  With technology constantly changing, this sort of data loss is a very real possibility.

Smart business owners plan for this problem.  Much of the stored information will be confidential and having it fall into the wrong hands can have far reaching consequences.  It can open a business to lawsuits from clients and make your business liable for paying damages to hundreds if not thousands of clients.

A business's data and information needs to be protected through proper security measures and backed up in multiple ways.  There are many online options from Google to specialty companies that can do this for you.  If you are in a regulated industry such as healthcare or real estate, you have a legal obligation to store documents in a specific way for certain number of years. 

Situation #5: Regulatory Changes

Speaking of regulations, most businesses have to follow certain laws and compliance guidelines.  These can govern nearly any aspect of what a business does.  The problem is that many of these regulations can change over time.  These changes can be unavoidable and are often unexpected.  As new politicians are voted into office and the economic climate changes, the rules for doing business will also change.

Smart business owners will familiarize themselves with the laws and regulations related to their business.  What many of them fail to do, however, is plan for changes in these regulations.  A business that refuses to be dynamic and able to adapt to such changes is one which is precariously close to disaster.

For example, in 2011 there were far reaching changes made by the FCC that drastically affected how a telemarketer could get access to calling lists and contact consumers.  Businesses that didn't adapt in time where shut down by the FCC.  Only those businesses that made sure their business model could survive the new operational restrictions survived to dial another number.

How to Protect Your Business

Planning for negative possibilities can be stressful.  And it is impossible to predict all of the threats facing any business.  Fortunately, there are a few simple steps any business owner can take to protect themselves from these problems.

Take the time to review your business model and assess your risk in these 5 categories.  Then start by mitigating your biggest risk.  Work your way down the list so that within 90 days, you are completely protected. 

  1. You need a plan to cover the potential loss of any vital employee, including yourself! Create and document systems that allow the business to run without current employees.  Insurance should also be purchased to cover the company in the event of an accident or injury, and a firm succession plan should be updated every six months.

  2. Business owners need to be familiar with any potential natural disaster in the area in which they have assets such as offices or warehouses.  Storm-proof your business as much as possible.  Create a business continuity plan (example: can employees work from home while the office is restored?).  Finally, get adequate insurance to protect your assets and income.

  3. Revenue sources need to be analyzed.  Clients and customers need to be diversified to help mitigate the trouble associated with losing any one of them.  If there is only one main source of revenue, its time put a client acquisition plan into action.  If you can't handle any more clients right now, have other sources of work lined up at all times.

  4. All data should be backed up on a secure server which, if possible, is located off site.  These days cloud storage makes backing up data easy and affordable.  Information such as contracts and other legal documents should be printed out and stored in a secure location.  Schedule a day each month or each week to back up all new data.  Start this immediately.

  5. Smart business owners need to keep an eye on the current state of laws and regulations relating to their business.  Make sure you have the systems in place to keep your business operational.  If you are not sure how things affect you, contact an attorney with expertise in your industry.  A consultation is a lot cheaper than losing your business.


These are relatively simple steps which any business owner can take.  While there may be no way to predict the future, proper planning can help turn a major problem into a minor inconvenience. 

You have the power to protect your business and your income.  Not only will these steps help protect your business; they will help you sleep a little more soundly.


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