Every day we see articles and social media posts encouraging people to step out and start their own business. We hear the constant encouragement to have multiple sources of income. We often see stories of small business success and we’ve all heard amazing stories about major corporations buying unknown startup businesses for millions. As a serial entrepreneur, I have seen the highs and lows of being a small business owner. Running a small business takes time, hard work and commitment. To get your new business off on the right foot, avoid these common startup mistakes.
1. No Business Plan
A great business plan should help you evaluate the market conditions and competition for your product and/or service. Your plan should explore start-up costs, operation budgets and the income you expect to generate.
The process of developing a good business plan may even expose issues that you did not consider in the beginning. It may even help you to decide whether your idea is worth pursuing. If it’s just a hobby, viability and profitability may not matter. But if market success if your goal, starting a business without a plan is a recipe for disaster.
2. No Marketing Plan
Having a equally great marketing plan is essential. After all, you can’t expect to make money if no one knows about your products/services. Your business plan will identify your targeted customer base and your marketing plan should demonstrate the best way to appeal to that customer base and separate your business from your competitors. Without a well-organized marketing plan, you’re prone to waste time and money on things that will not lead to profitability.
3. Patience Is A Virtue
Many business owners are so excited and eager to grow their business that they forget that in business, rapid growth sometimes can lead to even bigger problems. Rome wasn’t built in a day and your new business won’t be either. The fact is small businesses typically don’t earn any profit until year three, and it’s common to encounter issues and have setbacks. Successful business owners are prepared for this and have the patience and financial reserves to stay afloat and push forward.
4. No Budget
The desire for rapid success often gets small business owners into trouble because their spending is impulsive rather than planned. Your business plan should have included your budget and necessary expenses. However, there are pitfalls to avoid such as expensive office or retail space, unnecessary staff and equipment. Options such as virtual office space, home offices and office sharing are ideal if you don’t have a lot to spend on overhead. The lower your overhead, the more you will have to put into things that will really make a difference in the success of your business. Taking on unnecessary debt is a sure fire way to tank your business early.
5. Know Your Value
A common mistake made by new business owners is to fail to adequately price your products and/or services. You know the saying work smart, not hard? Well a surefire way to work hard and still lose money is to fail to know your worth. The market will make room for you if you have and present a desired product and/or service. Trying to attract more business by undercutting the competition or just plain not knowing what you should charge is a way to ensure defeat.
6. Selecting The Wrong Business Entity Type
I get calls all the time from new business owners who rushed to form a limited liability company because that’s what their friends did or told them to do. Others decided to wait and see if their business would work before setting up a business entity. Choosing the wrong business entity, or not setting one up at all, can have very undesirable consequences down the road. For example, if you operate as a general partnership, you may be surprised to find that you are personally responsible for all the business debts, even the ones you never agreed to. If you set up a corporation, you may end up paying higher taxes because you’re taxed at both the corporate and individual level. Utilize legal and tax professionals upfront. It may seem like an expensive route but it is far more costly after the fact. Entreprelegal is an affordable legal service designed specifically for small business owners.
7. No Business Insurance
For business with office and retail space, setting up a business entity limits your personal liability for business obligations. But you still won’t be protected if someone slips and falls on your premises, if you have an accident with a company car, or if you are sued for a defective product.
These sorts of claims can be devastating to both your business and your personal finances. Consult an insurance agent to get proper coverage for your office.
8. Not Utilizing Written Contracts
No matter the entity type, every business needs a written document that explains each member’s rights and responsibilities and what actions will be taken if one of them leaves the business.
All too often, though, business partners fail to put anything in writing because they get along well with each other and think they’ll always be able to resolve things easily. This is frequently untrue, and disputes between partners can be difficult, expensive and a business killer.
9. Failure to Protect Intellectual Property
If your business produces artwork, photos, music, software, etc… the things your creations may be eligible for copyright protection. In addition, your business name and logo are intellectual property that may be eligible for state and/or federal trademark protection. Your logo may also be protected by copyright. Smart business owners should always take steps to protect their intellectual property by formally registering it and actively guarding against its use by competitors.
10. Thinking You Can Do It All Yourself
Entrepreneurs tend to be independent, confident and self-reliant individuals. However, knowing your limitations and learning to delegate tasks are important skills necessary for a successful startup. Try to focus on the things you’re good at and enjoy while turning to other for things that require specialized knowledge.
Becoming a business owner is an amazing feeling. But if you want your business to succeed, take the time to plan and protect yourself.