Sage Advice UK

My business failed but yours doesn’t have to – here’s what I learned

Setting the right KPIs for your business can be tricky

In November 2011, after almost a year in operation, I closed my business, informed my customers I was shutting shop and started my new job at Sage.

While I was thrilled to start a new role, I was devastated about the closure of my business that I had poured my heart and soul into.

Only a few weeks earlier, I had hosted a launch event in my business premises and achieved significant press coverage. I had come from an amazing high to a crushing low in a short space of time.

Why hadn’t I stopped this from happening? Why had my business failed? With more than 50 customers, why wasn’t I able to keep my business open?

Now, I can look back on this time as a significant learning experience and can pin point exactly where I went wrong. I’m about to be very transparent and share mistakes that I would prefer to keep to myself but I wish someone had shared some of these insights with me, so here I go.

“I should have put a business plan together but didn’t”

Why my business failed? No business plan

My business was service-based and my main offering included web design and associated online marketing consulting. It sounds crazy but when I started it, I had no formal business plan. My business grew out of necessity in an organic way and I was sure I could make it work.

I thought business plans were for people seeking investment or trying to get a business loan and since I wanted to do neither, I didn’t think I needed one. This was a terrible mistake.

It meant I’d skipped a significant element of starting a business. Without a business plan, I had no cash flow projections, no costing plans, no SWOT analysis.

Because I didn’t have a business plan, there was no way for me – or anyone else – to assess the likely success of my business.

It meant that I wasn’t ready when things got difficult and I wasn’t planning for success or failure. It was this lack of planning for success that ultimately lead to the business demise.

As I grew my customer base to 50, it became completely unmanageable for me to serve these customers and continue to bring in new business to feed the cash flow needs of the business.

As I wasn’t charging existing customers enough for support and maintenance, I became a busy (cash poor) fool. I don’t know that I would definitely have predicted this had I done a business plan but it would have been a lot more likely. Don’t be like me, find out more about how to write a business plan.

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I thought I could do everything

When I started my business, I had a vague idea that at some point I would take on staff but I didn’t think that I would want to do that in the first two years of the business. I had no intention of confronting all the challenges associated with hiring people and was sure I wouldn’t need to.

I was doing everything from promoting my business to business development, sales, customer support, delivering the actual work, billing and admin.

It’s only when I explained this to someone afterwards did I realise how crazy it sounded. I also didn’t think I needed to hire an accountant, so I was trying to manage the business finances on my own and I missed out on the vital financial advice and business counselling that an accountant could have provided.

While I could have outsourced the web design to a third party, I refused to do this, thinking that my customers hired me so they deserved my attention. It felt like I would be cheating them if someone else was to work on their websites.

As a service-based business, it was just me doing all the work – I was limiting the business. The business growth was capped at my time and I spent most of that time juggling competing demands.

These are the types of emotional decisions a person makes when they are too close to a business and don’t have someone who is detached enough to give them good advice. I needed help both in terms of help getting the work done and servicing my customers but also help at a more strategic level.

Looking back now, I really wish I had a mentor or just someone that could give me some sounds advice. From working at Sage and meeting lots of accountants, I’ve since learned that this is something an accountant could have done for me.

“Instead of having fewer better paying customers, I had many customers that paid me less”

Money problems

It’s probably the issue that closes most businesses. You’d think that collectively the entrepreneurship community would have solved this one by now but the business finances were at the heart of my business closure and those of many other businesses.

Very much connected to the lack of a business plan, I wasn’t charging enough for my time. My target audience was small business owners and they will only pay a certain amount for web design. I kept my fees low to attract business and most of the time didn’t charge for the advice and consultancy that comes with helping a business get online.

While that was great for my customers, it wasn’t good for me. Instead of having fewer better paying customers, I had many customers that paid me less. It wasn’t their fault, I agreed the pricing with them.

From time to time, late payment was also an issue so a few months into the business, I started to collect a 50% deposit before commencing work. While this helped it still didn’t alleviate the cash flow problems my business had and many times I was not able to pay myself a wage.

VAT issues to deal with

As I was charging VAT, I also had to keep on top of VAT payments and put aside money to pay my VAT bill every two months. Thankfully, this never became an issue but was just another thing to manage.

When my business closed, I was actually relieved that I wouldn’t have to face another VAT return. This didn’t need to be as stressful as it was and now I wish I had just hired someone to help me with all of this. Ironically, I now work for a company that has software to do all of this too. I wish I had known about Sage then. How things come full circle.

Did you recognise any of your mistakes when you read mine? Perhaps you’re much wiser than me and have avoided all of these. Starting a business is not hard. However, maintaining one is one of the hardest things you will ever do, so try to learn from others and avoid their mistakes and don’t be too hard on yourself if things go wrong.

Thankfully, my story has a happy ending. I love my job at Sage and get to work every day with business owners who are much wiser than I was.

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