Almost everyone knows a successful small business owner, and there are plenty of stories of big corporations buying little startups for millions of dollars.
It sounds so easy, but 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.
Not Having a Business Plan
A good business plan evaluates the market for your product or service and the competition you’ll face. It looks at the amount of money you’ll need to get started and run your business and the income you can expect to make.
Putting together a business plan takes some work, and there’s a chance that you’ll discover that your great business idea isn’t so great after all. Because of this, a small business owner sometimes jumps right in without a plan—and then wonders why things didn’t work out the way he imagined.
Not Having a Marketing Plan
Your marketing plan goes hand-in-hand with your business plan. After all, you can’t expect to make any money if no one knows about your business. As part of your marketing plan, you’ll identify your ideal customer and figure out the best way to appeal to that customer and differentiate yourself from your competition. And you’ll establish ways to measure your success so you can change course if something isn’t working.
Without a marketing plan, you’re apt to waste time and money on a scattershot approach that doesn’t do much to bring in business.
Rome wasn’t built in a day, and your new business won’t be either. Many small businesses don’t earn any profit in the first year or two, and it’s common to suffer setbacks after some initial success. Successful business owners are prepared for this and have the patience and financial reserves to keep pressing forward.
Many small business owners get into trouble because they don’t keep their costs under control.
It pays to be conservative in your spending until your business has a consistent track record of profits. Watch out for budget-busters such as an office or retail space that’s too large or expensive, nonessential employees, and more or fancier equipment than you need. Be wary of taking on debt. As a new business owner, you’ll almost certainly have to sign a personal guarantee on the amounts you borrow, so you’ll remain responsible for paying those debts even if your business fails.
One sure way to work hard and still lose money is to underprice your goods or services.
New businesses commonly do this for two reasons: either they’re trying to get more business by undercutting the competition, or they haven’t done their homework and don’t realize what they should be charging. When you don’t charge enough, you may not even be able to cover your overhead.
Not Forming the Right Business Entity
In their rush to get up and running, new business owners sometimes decide to wait to set up a business entity. Or they hastily form a limited liability company because that’s what their friend said they should do.
But choosing the wrong business entity—or not setting one up at all—can have serious 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’s 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 the personal level.
Do your research and get some startup advice from legal or financial professionals, if necessary, to make sure you’re structuring your business in a way that will save you money and help you avoid liability.
Thinking You Don’t Need Insurance
Setting up a business entity limits your personal liability for business obligations, but it won’t protect you 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, malpractice or any other sort of personal wrongdoing.
These sorts of claims can be devastating to both your business and your personal finances. Consult an insurance agent and get enough insurance to cover you.
Not Having a Written Agreement With Your Business Partners
Whether it’s a partnership agreement, an LLC operating agreement, corporate bylaws or a buy-sell agreement, every business needs a written document that explains each partner’s rights and responsibilities and describes what will happen 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 informally. This is frequently untrue, and disputes between partners can be difficult, expensive, and emotionally draining.
Failing to Protect Intellectual Property
If your business produces artwork, music, software or inventions, the things you create may be eligible for copyright or patent 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 keep track of their intellectual property and take steps to protect it by registering it with governmental agencies and actively policing its use by competitors.
Thinking You Can Do It All Yourself
Entrepreneurs tend to be self-reliant individuals, but knowing your limits and learning to delegate tasks are important skills if your startup is going to succeed. Try to focus on the things you’re good at and enjoy doing, and find others who can handle tasks that you dislike or that require specialized knowledge.
Starting a business is exciting, but don’t let yourself rush into things. If you want your business to succeed, take the time to plan and protect yourself. And then be patient and give your business time to grow.