When starting your first small business, it’s very easy to make mistakes as you learn the ropes of all the new skills you have to master. Managing employees, raising capital, creating budgets, handling payroll and taxes – these are all difficult tasks, especially for newbies. Knowing and understanding some common business mistakes may help keep your margin of error from cutting into your profit margin, and keep your business from going under.
The following are a list of 10 of the most common pitfalls small business owners face as they’re getting their new businesses started.
1. Insufficient capital – Not having enough money to fund start-up costs can have big impacts on your business, leaving you unable to buy sufficient inventory, pay for unexpected costs or make rent or other payments on time. While it is possible to start a business on a shoestring budget if you have an idea that’s going to bring in profits quickly, more often the businesses who don’t start off with enough cash fail because they can’t fund critical needs or they’re left playing catch up for a long time.
To avoid starting with insufficient capital, be sure to check and double check your business plan. Try to anticipate every possible cost that could arise and make sure your business has the capital it needs to address these needs. Also, consider opening a line of credit with a local bank or credit union that you can tap if you need access to funding.
2. Lack of customers – It’s wise not to be too dependent on just one customer when starting a business. While some businesses do quite well catering to just a few high-end clients, becoming too dependent on a single client or small pool of clients increases your risk of failure as your small pool of clients may face adverse circumstances that prevent them from buying from you, or the relationship between you and those clients may change. When starting a new business, try to have a broad enough client pool so you can sustain a few defections without a major disruption of your business. Also, if possible, try to land long-term deals with your customers so you’ll have a steady and reliable stream of revenue.
3. Ineffective marketing – Customers can’t buy your products or services if they don’t know about them. Even though you’ll likely be starting your business on a small budget, don’t neglect to market your business. There are a number of inexpensive ways to market your business, including throwing a grand opening party, having T-shirts printed, sending announcements to your local newspaper or using social media to spread the word.
When choosing your marketing methods, be aware of your target customer base and choose a method of marketing likely to appeal to that base.
4. Poor record keeping – Keeping track of receipts, check logs, time sheets and tax documentation may seem tedious, but it’s important to keeping track of the revenues and expenditures of your business, paying your bills on time, making sure you’re paid on time and complying with government rules. Having your books in disarray can result in late fees and unpaid bills and massive headaches at tax time.
There are a wide variety of software applications that can help you keep your books in good order, and many of them are inexpensive. It is highly advisable that you invest in accounting and management software, as it can save you a lot of time pouring over paperwork. You should also devise a filing system for keeping up with receipts and paper copies of bills and tax statements, as these may be necessary for completing your tax return and provide a valuable back-up to your electronic records.
5. Failing to meet sales goals – Not hitting your sales targets will leave you in a tough position as the revenue you expected to cover costs and create a profit doesn’t materialize. Insufficient sales revenues can cause you to fail to meet fixed costs, such as paying for inventory and making payroll.
If you’re not making sales goals, you may want to consider cutting prices. This could help business pick up, and while you still won’t be making as much as you planned on, you could earn sufficient revenue to meet your costs and ride out your slump until business rebounds. Price reductions are also a valuable word-of-mouth marketing tool, as a price cut can often bring in new customers attracted by your more competitive pricing.
6. Failing to control costs – Not having a firm grip on your business’ expenditures can quickly cause your business to lose profitability and even fold. You must keep a watchful eye on costs and look for ways to ensure that your revenues exceed them. This means keeping careful accounting records, spending the time to drill down and learn about costs that are unexpectedly high, and the discipline and persistence to enforce cost cutting efficiencies.
7. Bad location. If you pick the wrong location for your business, attracting customers will be an uphill battle. Also, if your business is located in an area not zoned for business, or where your specific home-based business isn’t allowed, you could face legal and regulatory hurdles. This is a pitfall that has to be avoided in the planning stages. Before settling on a location, inquire about the zoning and use regulations for the area where you plan to locate your business. Also consider the target customer base for your business, and whether your location will appeal to them. Be sure to ensure that your business has adequate water, sewer, electrical and telecommunications infrastructure to support your business, and also take the time to talk to community residents and get a sense of their feelings concerning a business locating in their neighborhood.
8. Hiring the wrong people. Getting the wrong set of employees can absolutely sink a business. In fact, the U.S. Department of Commerce estimates that nearly a third of all small business failures are caused by dishonest employees. When hiring employees, be sure to check references and conduct personal interviews to help make sure you weed out undesirable candidates.
Most of these mistakes can be avoided in the planning stages of your business, while the others can be dodged by due diligence in the course of your business. By thinking ahead and planning carefully, you can eliminate many of the variables that can negatively impact your business.