When starting a small business, knowing what not to do can be just as important as knowing what to do. Learning from commonly made stumbles by other small businesses can help you avoid these potentially fatal mistakes with your own business.
The following are the top 10 mistakes made by small business start-ups:
1. Perhaps the biggest mistake most new start-ups make is launching their venture without adequate funding. When starting your new business, you need to have a solid grasp on what your start-up costs will be, including supplies, utilities, labor, shipping, services, etc. Then you need a little extra for unforeseen events. If you think it will take time before your business starts turning a profit, you need to have money on hand to handle operating costs until your venture gets on solid financial footing.
When getting your business set up, make sure to establish some good relationships with lenders so you can get access to more credit at reasonable rates if you need it. Being able to tap into their resources will help you get over any early humps you may come across.
One of the best ways you can impress lenders and investors is to have a solid business plan. You should be able to show investors a realistic estimate of the costs involved in starting up your business, monthly expenses and how much money you intend to make. The better your business plan, the better your chances are of securing the credit you need to cover start up expenses.
Starting off with a sound warchest can keep you from the agonizing defeat of having to shut down your business for lack of funding right when it’s about to turn the corner into profitability.
2. Employment mistakes are another killer. Your early employees will set the tone for your business, often being the first impression customers and suppliers have of your business. They’ll also be role models for future employees. If you get the wrong people early into the life of your business, the results can be disastrous.
You can help get your business off to a good start by rigorously screening employees during your hiring process. Cover all the bases. Check references, conduct thorough interviews and even test employee skills if possible. Weeding out the bad apples before they’re hired can help you get off to a much smoother start.
3. To successfully launch a new business, you need to have a thorough understanding of that business. Do your homework before hanging out your shingle. Understand your market, your competition, your products and services, your supply chain, and every other aspect of your business. The more knowledge you have, the better you will be able to handle situations that will arise with competence and confidence.
4. Failing to plan for success can be just as troublesome as failing to have a plan B when things go awry. Many small businesses that achieve early success founder when their management is unable to make the right moves when things are going well – things like hiring new staff, expanding product lines, having the capacity to handle increased volume, proper accounting practices, etc. Before starting your business, you should identify key growth milestones and what needs to be done to keep your business on track when these milestones are met.
Taking a look at how businesses similar to yours have grown can be helpful to you in creating a template for your own company’s success. Read trade publications and ask questions of industry veterans to help you chart a better course for your company’s success.
5. Getting the pricing on your products and services wrong is another common start-up error that can have serious problems. If your prices are too high, you’ll lose customers. Too low and you won’t be able to cover the costs of doing business. Again, this is where doing your homework and knowing your market and suppliers will be important. It also pays to have a firm knowledge of the costs of doing business not associated with purchasing products or supplies, such as labor costs, taxes, utilities, etc. Having a firm grasp on the numbers helps you set prices that won’t scare off customers but will keep a roof over your head.
6. Clashes among partners. Going into business with someone is like getting married, in order for the partnership to succeed their must be mutual respect, committment and willingness to compromise. Clashes between partners can kill even well-established businesses, so just think of what they can do to fledgling businesses. Minimize clashes between partners by having clear lines of communication, mutually agreed upon goals and by defining each partner’s area of responsibility and authority.
7. Not having a well thought-out business plan can be a fatal error for a new business. Failing to establish specific goals for your business and identifying how you will reach those goals can cause a business to be rudderless and easily founder. When preparing your business plan, don’t just go through the motions. Cover every aspect of the standard business plan thoroughly. You’ll find this preparation useful when you run into problems.
8. Failing to market. Even if your marketing budget is small, you need to get your name out there. Use the free media (social networking, e-mail campaigns, etc.) as much as you can and also see if you can pitch an interesting angle about your business to a local newspaper or television station. Local media organizations are always looking for content, so a good pitch can get your store some free airtime or newsprint.
Remember, if no one knows about your business, no one will frequent it.
9. Failing to have a website or spending too much time and too many resources on your website can also be a small business killer. When planning your business, you’ll need to determine how important the Internet could be to your service, and how much you need to put into it right away. For some businesses and markets, a website is only of small use in the early stages of the business, while in others having a good website from the get-go is important.
This goes back to your business plan. When coming up with your business plan, you need to determine how important a website will be to your venture, and how many resources you can put into it in the beginning. It’s a good idea to check out what your competitors are doing and when businesses similar to yours outside your area are doing.
Building a basic website is an easy DIY project that just about anyone with a rudimentary knowledge of computers can accomplish. As your business grows, you may want to hire a web developer to spruce up the site and make it more professional.
10. Poor bookkeeping and accounting is another problem for start ups. When you get started, you need to account for every penny coming in and going out of your business. You also need to make sure that all taxes and government fees are paid to avoid trouble with the authorities. Becoming adept at bookkeeping yourself or hiring someone who is an important mission for any start-up.
These 10 mistakes should not discourage entrepreneurs from starting their ventures. Great companies have been built on shoestring budgets and many great managers have learned their business on the fly. However, by firming up as much as you are able in the 10 areas listed above, you can greatly increase your chances of succeeding.