Start-ups – Increasing survival possibilities

Every year Malta has a number of start ups which initially seem to have an interesting potential for success. Unfortunately some of these fall short in following the main business disciplines which might lead to a start-up disaster.

Pitfalls

When businesses fail they can produce awful consequences for all the stakeholders concerned. In  the case of small businesses particularly in the first three years there are some common pressures including finance issues, demand forecasting, management, marketing , capitalisation at start-up and business planning. Whether a business owner had a sufficiently viable and robust idea, the necessary resources, experience and acumen to successfully manage the “credibility merry go round” is also of paramount consideration.

Start-ups, particularly in Malta, tend to avoid spending enough money on accounting and financial advice. It is no news that a number of micro businesses get into a financial disaster because of lack of any accounting records or due to inadequate use of financial information.

Most of the start ups that actually invest in accounting systems do not reap the benefits of their investment. Entrepreneurs in general seem not to be good at numbers. They seem to be much better at marketing or business generation. This means that it is usually better to have someone around who can look, question and interpret the numbers in order to assist the entrepreneurs in taking even more effective decisions. Moreover, one needs to consider the fact that the possibility of an entrepreneur having the time or interest to do all the analysis required are rather remote.

Failing to take the appropriate advice on financial matters may lead to businesses going from occasional financial problems to regular difficulties. One may end up constantly fighting against liquidity problems such as trying constantly to extend their overdraft limit, finding difficulty in paying  VAT and other Tax obligations, or constantly  negotiating credit terms.

Business plans and their continuous monitoring and review is also very important. Certain business persons consider the Business Plan as a mere fund raising tool as it may be requested by the bank or possible investors.  There are more benefits in preparing a business plan.

Business planning with analysed demand forecasting based on the other parts of the same business plan including marketing, human resources, operations and logistics can signify the success of a business and may assist in the business avoiding certain wrong decisions. It certainly assists in taking informed decisions.

Advice

There is a big difference in running an established business and one in a start-up phase. It seems that certain start ups tend to base their choice of advisor on the fact that the advisor is experienced in their particular sector. Experience in the sector is important but a person experienced in start-ups may give important insights. The ideal case would be a start-up advisor experienced in your sector. A law firm, an audit firm or a bank might not be set up to give you the advice you require.

Entrepreneurs could also make use of mentors. They need someone who’s going to question the implications of signing a contract or striking a deal or other business decisions. However, it is of utmost importance that the mentor has experience but has also a fresh outlook. My English colleagues say that mentors need to have grey hair and a young mind.