Being a successful new business owner means avoiding mistakes, making effective finance decisions, understanding your customer and how to market to them, and choosing and keeping the right employees. Business owners must choose the correct business entity and devise marketing, business, and financial plans that structure the goals of the business.
While there are no set-in-stone plans that guarantee success for your business, there are some common mistakes that new business owners make during the start-up phase. Here we discuss the 10 most common mistakes new business owners make, and how to avoid them.
1. Not Forming the Right Business Entity
Choosing the wrong business entity, or not establishing one at all, can have serious consequences. The business entity is one of the most important decisions you will make especially when considering the risks and liabilities of the products and services you offer. Sole proprietors and partners are personally responsible for business liabilities. Limited Liability Companies (LLCs) carry annual tax/reporting fees, even if they don’t turn a profit, and though Corporations protect owners from personal liabilities, they are required by law to keep certain records and to conduct business in a specific way. One example of such record-keeping are the Annual Requirements due by LLC’s and Corporations. A reputable Registered Agent can help maintain your good standing and authority to transact business.
2. Skipping Planning
Starting a new business begins with planning. Not only will you need to devise a solid business plan, especially if you are planning on getting start-up funding through investors, you will also need a financial plan and a marketing plan. Without this planning, and the understanding that it will help you gain, you will be operating a new business without a thorough understanding of your situation, how you are using and will use money, and how you will reach and motivate your customer base. In other words, you will be operating a new business in the dark. You have to have some idea of the market you are entering and how to use the market to achieve your goals.
3. Planning on Early Profits
Most new businesses do not realize a profit in the first few years, leaving business owners with the pressure of figuring out how to deal with cash flow problems, and how to pay the bills, before the business can generate enough money. Plan for this, and be sure to have secondary source of income that you can rely on to help sustain you and your business for those first years. Business owners that borrowed a large amount to start up their business may be facing large monthly payments and feel pressured to turn a profit quickly, which can lead to bad business decisions.
4. Overspending and underspending
A common new business error is overspending or underspending during the start-up phase. Too much money can easily be spent when buying office furniture, equipment, and marketing materials. Make cost effective purchases that will work on a shoe-string budget.
Hiring employees is another common mistake for new small businesses. When you hire a permanent employee, you will be responsible for withholding taxes, paying unemployment taxes, paying for worker’s compensation insurance, and keeping employee records. If you fail to do these things, or you do them wrong, your business will be liable. Instead of hiring fulltime permanent employees, look into independent contractors or hire from a temporary agency when you need help in the beginning.
5. Sales, Credit, and Collecting
If you forgo planning, you may find that you are undercharging for your products or services. You may think that focusing on sales, or offering prices below your competition will help you gain an advantage, but instead you will realize poor cash flow and reduced profits, at a time when every penny counts. You will also be your own debt collector and will spend valuable time collecting what is owed to your business.
Another faux pau that new business owners may make is extending credit. Yes, every business has customers who pay their debts late or even not at all, but it is your job to reduce the number of slow/no paying customers you have. You cannot afford to give your product or services away for free.
6. Not thinking about taxes until it’s time to file
While nobody really wants to deal with taxes, business owners should get professional advice and develop a tax strategy before you begin taxable activities. Working with a professional and learning how to minimize the amount of taxes you owe each year
7. Choosing and Keeping Employees
Ineffective hiring and management of employees is another common mistake. Your employees are your most valuable assets and they can help you attract and retain your customer base, or they can hurt your business and waste valuable time. Select your employees carefully, and reward those who do their job well.
8. Servicing Customers
Excellent customer service can do more for the success of a business than most new business owners realize. Just like customer service blunders can cost your business, (in profits and reputation) customer service that goes beyond the norm can set you apart from your competition and help your profits grow.
Today, customers use the web to review businesses and their products or services, and a bad review written on a popular site can cause serious damage to your reputation. Deal with customer issues quickly and thoroughly to prevent negative publicity and enhance your reputation.
9. Managing your business
Sometimes new business owners can be so determined to keep customers, that they spend far too much time (and therefore money) trying to please a customer that just can’t be satisfied. Letting go of customers who drain your resources may be better for the life of the business, and will free up those important resources for more valuable customers.
10. Leading your Business
As the leader of your business it is up to you to learn as much about your market, and your competitors as possible. You must learn who your customers are, how to reach them, and how to motivate them. You should know your competitors offerings, as well as how they reach and motivate their customers. You should remain flexible, and prevent emotions from influencing your decisions with your products, services, or customers. Also, ensure that your business does not become dependent on any one group of customers. It is imperative to the success of your business to continually grow your customer base so that you are not financially harmed if your customers move to another business.
The advice purported here is as valuable to new business owners as it is to those who are past the start-up phase. It is hard work, but you must stay committed to your goals to realize success.