Avoid These Five Mistakes When Starting a Business
Have a great business idea but don't know where to start? Entrepreneurship is an exciting but scary proposition, but it can also be very rewarding.
Entrepreneurs know that any startup involves risk. According to the U.S. Chamber of Commerce, 50 percent of small businesses fail within the first five years. When starting your own business venture, avoid these five most common mistakes.
Not Planning Enough
You have heard the expression, “Failing to plan is planning to fail." This adage is especially true with a new business. Small business owners do their research. They know the market, their target client, and their competition before investing their time and money into a new business.
When developing your business plan, you should answer the following questions:
- Who is your potential customer? What do they want? Can you meet your customers' needs?
- How can you reach your customer? What is your marketing plan? Will social media be a part of your marketing campaign?
- Who is your competition? How can you stand out from the competition?
- How will you fund your business? Do you have enough to operate for the first year and subsequent years?
Not Having Sufficient Funding
One of the biggest mistakes a small business owner may make is not having enough cash flow to meet a sudden demand or operate until they can turn a profit. According to LinkedIn, many new entrepreneurs may not expect to see a profit for three to four years. You must know your financial projections to understand what business financing you need. While you may hear stories of entrepreneurs maxing out their personal credit cards, it is not sound financial planning. Determine if you need a loan or line of credit from a bank. Or check with the U.S. Small Business Administration (SBA) for help with guaranteeing your bank loan.
Not Setting up the Proper Business Structure
If you are a one-person business, you may start out as a sole proprietorship. Your income and losses go on your personal tax return. However, as your business grows in income and risk, you most likely will want to protect your personal assets from your business activities. Forming a corporation or limited liability company (LLC) separates your business assets from your personal ones, so you safeguard your personal assets if there is a claim against the business.
And if you have a co-founder, setting up a business entity formalizes your rights, roles, and responsibilities. When you choose a legal structure for your business, you should consider how you want to report taxes, how easy it is to maintain your business entity, and if you will have partners or shareholders.
Not Keeping Track of Trends or Analytics
All businesses must do market research and know what their customers want. A big business mistake is not to stay current with your customer base and trends. Ask Blockbuster, a one-time hugely profitable movie-rental chain that laughed at Netflix's proposal to allow customers to rent movies from home. As customer demographics change, so should your business model.
And reaching your target audience involves a marketing strategy using analytics. If you are using advertising or online marketing, how are you measuring that success?
Not Asking For Help
Entrepreneurs are known for their hard work and drive. And a big mistake entrepreneurs make is trying to do it all. If you have employees, try to delegate the most time-consuming tasks as much as possible. Also, surround yourself with a team of professionals, such as accountants and lawyers, that can advise you as you start and grow your business, especially if you have intellectual property or wish to franchise.
Every new business owner can share stories of their startup mistakes. The important thing is that they learned from their mistakes to create a successful business.
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You Don’t Have To Solve This on Your Own – Get a Lawyer’s Help
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