The Ministry of Economy states that one of the most common reasons for the failure of private businesses is the lack of financial discipline, where business owners often do not know where the money goes or even “extract” too much money from business for private use.
“Lack of cash and incorrect understanding of how it is managed is the main reason for the illiquidity of most companies,” the Ministry told our portal.
In addition to finances, they add, the lack of a detailed market assessment, research and planning can also affect the fact that the business does not start exactly as we expected.
“Wrong people in the wrong places are a great danger for business, and above all the employment of unqualified people due to lower allocations for their engagements. And one of the most important things, and above all when it comes to new business, is marketing, that is, thinking about ways of selling before something is even produced,” they conclude in the Ministry of Economy.
This topic was also addressed by the participants of the recently held seminar “Honest stories of (un) success” organized by PC Press.
How to get the right information?
Co-founder and executive partner of the Cube Team, Marko Radojicic, reminded at the mentioned seminar that business information is collected by every company and it usually concerns the market, competition… However, according to him, the younger and simpler the company is in structure – that way information gathering is less well formulated and not structured properly. This is where cooperation with a data provider comes into play, which serves to continuously transfer knowledge to the company and thus improve its business.
“It is often said that the fact that someone has a private company means that all the data is his privacy, but, of course, that is not the case. Companies have an obligation to publish certain data. A large number of companies open and close daily – among those companies, there are certainly those who deliberately shut it down, did not fail, but estimated that they would get some other benefits. In order for every company to be able to follow all that, it must prioritize certain information, because there are millions of different information that are updated minute by minute,” he noted.
In his opinion, it is very important to choose the right data partner who will help you – he will not be the key to your success, but he will still help you a lot to become and remain the market leader.
The cheapest activities are chosen
According to the data, the Serbian market is very suitable for business – more and more people are entering entrepreneurial waters. However, it should be borne in mind that the largest number of them are in service, the cheapest activities – more than 60 percent. They are relatively cheap to begin with, because they do not require large capital or expensive maintenance.
There are as many as 4,000 newly established companies every month, or 130 on a daily basis – or 5 every hour.
“It shows that the market is dynamic, things are changing quickly, but there are also certain trends in terms of the relationship between established and closed companies: 2010, 2011 and 2012 had a negative trend as a result of the global economic crisis. Also, there is the extreme of 2019, which happened due to a change in the law, where flat-rate entrepreneurs from the IT industry had to switch to “doo” or regular employment, but in essence the trend is positive and growing,” said Marko’s colleague Lazar.
Business for more than 5 years increases the probability of the company’s survival by 85%, analyzes show.
What is especially interesting is the fact that the years of the founders do not have a dominant influence on the success and survival of companies.
There is no place for emotions
Adnan Misimovic, a member of the board of Megamix, told those present at the seminar that they should never miss a good crisis – it is a situation for change.
“For example, when our business decreased, the question was what to do with capital. That’s when I realized that I don’t know anything about investing and managing property “, Misimovic said.
He asked himself what he would do if he viewed things as a financial, not an emotional investor, since it was a company built by his family.
Then he set out to explore…
What to invest in?
“The first was – why not buy one or two more apartments? Everyone in this area believes most in brick as an investment. However, when I extracted data on how real estate prices in Zagreb were moving, I saw that it took them 11 years to return to the level before the world economic crisis. Also, in our part of Europe, real estate is generally expensive,” which led him to give up on that idea.
The next idea was to go to the bank.
“Why don’t we keep the money in the bank? It makes sense for everyone to have a fund for “black days”, an amount that will cover six or twelve months of expenses in case of something unforeseen. In Serbia, up to 50,000 euros per person is insured by the state in case the bank fails, it is an insured deposit. However, savings in the bank – there are no dividends, interest rates are low and will not cover inflation,” explained Misimovic.
So, that idea also “fell away”.
“After that, the question arose – why not local bonds? They look tempting, the state is behind it, they have higher rates of return than in banks, there is no problem what if the bank fails… But then I see that the country’s credit rating is BB +, and everything below BBB means higher risk, so countries borrow at higher interest rates… Then why not private business? That would sound logical, right? But an important question needs to be asked – is most of the property allocated in the business? If it is, it is already a little worrying,” he claims.
So what is the key to success? In his opinion – diversification, that is, investing in several things at the same time.
“Everything will never grow, but there will always be something that will keep that portfolio above water. Take a look at some good practices, such as how European pension funds invest. They invest in stocks, bonds, real estate and land, cash… Cash is the least risky, but has the lowest return. Cryptocurrencies, on the other hand, have the highest risk, but also the highest return. Shares and bonds are the backbone of almost every portfolio and there the expected annual return should be 6 percent on average – meaning it should double in 12 years. If you have more than 10 years at your disposal, the shares are for you, if you need that money for less than 5 years, you should be careful,” he explains.
Bonds, they say, have a lower return, but they don’t fall much, and even when that happens – they return quickly.
“When it comes to real estate, it is better to invest through a real estate fund, where you do not have one physical real estate, than several real estates a little. Real estate is nice because it doesn’t fall when stocks fall. With money, you have a return of zero percent, somewhere even negative if you have to pay for keeping money in the bank. Then why should you always have something in your money? Because you don’t know when the business needs an additional injection, when a good investment opportunity will come up and similar,” advises Misimovic.
There is no real mix of all of the above – he adds, it is different for each investor.
What no one can know?
“Gold and bitcoin are speculative investments, we don’t know if the price will rise or fall,” he notes.
It is important to distinguish between two types of investment.
“Passive investing means monitoring the market, the attitude that prices are realistic, that I am not the “smartest”, and I will buy everything I can, whatever, because it is okay for me to earn no more and no less than the average. On the other hand, active investing implies the attitude that I will win the market, that he knows what others do not know, and I will buy individual shares, because I believe that I will earn more, but I can also lose. However, if we look at the people who run the largest investment funds in America, that is, the people who are paid for it – only 10 percent of them beat the market within 5 years, 1 percent within 10 years, and within 15 – no one,” he concluded, BiF reports.
