Have you ever put your head in your hands and uttered the words “why does every business mistake cost me money!”. Its always the way isn’t it, the chances we take or even the most thought out business decision that goes wrong costs you financially.
Of course, the opposite is also true, the business opportunity you didn’t take but should have done that would have netted you significantly financially.
You are not alone, imagine if you were the top management team at Blockbuster video, who in 2000 laughed out of their office the management team from a newly formed Company called Netflix.
Netflix proposed that it would handle Blockbuster's online component for it, and Blockbuster could host its in-store component, removing the need for mailed DVDs. According to an interview with former Netflix CFO Barry McCarthy, "They just about laughed us out of their office." Blockbuster later closed shop (literally) and Netflix went on to thrive.
Even the team NASA can get it wrong. In 1999, a Mars orbiter that the UK Company Lockheed Martin designed for NASA was lost in space due to a simple error where the engineers at Lockheed used English measurements while the NASA team used metric ones.
The mismatch led to a formation on the USD125 million craft malfunctioning and the probe being lost in space. There were numerous occasions where the error should have been caught but wasn't.
Hopefully your bad business decisions have not cost you USD125 million or cause your company to close, however when you are a small business, losing even USD1,000 can feel like millions.
If you are a risk taking solopreneur then this may not be the blog for you, however if you are a risk taker with employees, you now have financial responsibilities for your employees and their families, taking risky business decisions affects their livelihood as well of yours, making business decisions may be the time to think before you jump, you may be tempted to put all your eggs in one basket, but what about your employees? You now have a financial obligation to them.
So how can you stop making the wrong choices? There is no fail-safe answer, however, here are 5 questions to consider before you commit or walk away from an opportunity:
- Can you afford to make the investment?
Some business decisions require you to make an upfront investment in products, finances and or time.
Is now the right time to make such a large investment?
What happens if the expected investment return date is delayed?
Can you afford to not have the money returned at the expected time?
If it’s your time that you need to invest, will this distract you from the main parts of the business?
Will it take you off track and away from your business plan?
As an example, Company X had invested a great deal of its profit into product for an expected deal outside of the UAE which was a sure thing, it just needed them to buy product, ship it and watch the profits flood in.
The product was bought, shipped and implemented at great cost to Company X, however the middle man Company brokering the deal with failed to make the repayments as per the contract.
The contract was not water tight meaning they could take no legal action leaving Company X living month to month to pay the teams salaries. Before you sign the bottom line, its advisable to ask yourself if you can afford to lose the money.
- Is there a written contract?
This is 2018, there are no such things as “gentlemen’s” handshakes agreements, sad to say, in business there are no gentlemen (or gentlewomen), you cannot take legal action on a handshake and promise to deliver A if you give them B (B is usually money).
As an example, Company Y recently completed many months and hours of work for Company Z based on a friendship and previous working relationship which had always worked out.
They had no contract, but as it had always worked well in the past, Company Y felt it could carry on with the project without concern. However, Company Z failed to pay leaving Company Y without payment and no recourse to claim the money back.
- Does the contract have a termination clause?
A signed contract isn’t always a failsafe solution, from experience, even when you have one it does not mean you are covered should you not be paid.
However, the inclusion of a termination clause is always encouraged, is there a quick and easy way out if things do not go to plan? I appreciate that we usually go into any contractual agreements with the most positive ending in mind, however if it does go wrong, you need to have a clean and transparent way out.
- Do you feel under time pressure to sign the deal?
If yes, what would happen if you pushed back and delay making the final decision to allow you to complete more research?
If you feel that you need additional time to decide, then take it even if the offer on the table will disappear if you don’t act quicker. Unless you are a risk taker without concerns about any financial implications, acting cautiously in business is usually the best decision.
- Is what’s being promised being delivered?
Don’t start a project/sign a deal and then get distracted by something else, monitor progress and keep an eye on the investment made, is it bringing its promised returns? If the answer is no, why not?
If the deal requires monthly payment from your side in a retainer contract, then how long is it before you take action and stop the monthly expense?
If the deal requires you to provide a service with monthly payments, how many months of non-payment do you allow before you remove the service provided?
Business owners need to keep a close eye on their cash flow and their financial forecasts, act as soon as you can see an issue and terminate the agreement or withhold your services until you are paid for the time already given.
I hope the questions above are of help to you.
With the introduction of VAT in the UAE, where Companies are required to pay VAT on any invoices as soon as they are issued, non-payment of invoices will be putting financial pressure on Companies and depending on how many bad debtors a Company has, can be the reason for Company closure.
This is probably the time for Companies to think first before jumping into new projects.