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Have you ever made a mistake as a small business owner? Who hasn’t? If it’s any consolation, you’re definitely not alone. The 12 mistakes below are so common that every entrepreneur I know (including me!) has made at least one of them.
“When you fail to plan, you’re planning to fail,” as the saying goes. Without a business plan to guide your startup and growth, you’ll struggle to make decisions, get loans, or bring investors on board.
Solution: Plenty of tools exist that make writing a business plan practically painless. BPlans.com offers free sample business plans and a free business plan template you can use.
Some entrepreneurs start businesses based on a cursory survey of friends and family who say it’s a “good idea.” But friends and family aren’t enough to sustain a startup going forward, and without a well-defined target market, your business will struggle to compete.
Solution: Conduct thorough market research to pinpoint your ideal target customers as narrowly as possible. Use secondary sources, like Census data, and primary sources, such as surveying prospective customers or holding focus groups.
Is your business a sole proprietorship just by default, or did you form a C corporation because that’s “the standard way to do it”? Hastily selecting your form of business can expose you to legal risks, make it hard to raise capital or entangle you in red tape.
Solution: Before launching your business, talk through your plans and goals with an attorney and accountant. They can help you assess your current situation and future plans to choose the business structure that best fits your needs.
Are you trying to save money, or do you just not want to delegate anything? Regardless, if you wait until you’re desperate to hire, you’ll end up handing the job to the first candidate who’s halfway decent—and that will end up hurting, not helping, you.
Solution: Whether it’s enlisting one of your kids to stuff envelopes or using an online graphic design service to create your logo, force yourself to delegate small tasks from the beginning of your startup. This will make it easier going forward.
An equally expensive mistake is hiring too quickly, such that you hire the wrong team. Hiring the wrong team will not only cost you money, but it’ll start your business off on the wrong foot and hurt overall morale.
Solution: Hire carefully and thoughtfully. Go through an interviewing process with everyone—even if you’ve worked with the person before or the candidate is a friend. Also, before you hire someone just based on skill, take a moment to evaluate whether or not this candidate is a culture fit. Teams work best when everyone working together gets along.
According to one recent survey, nearly half of small business owners don’t have a website. That’s like starting a business but not bothering to tell anyone about it or not putting a sign outside your store.
Solution: Today, most web-hosting companies will not only host your site but also design, maintain, and market it for you, for prices as low as a few dollars a month. Now what’s your excuse?
Finding small business financing can be time-consuming, and if you wait until you really need the money, you may be forced to settle for less-than-ideal options.
Solution: Stay on top of your cash flow and create ongoing financial forecasts. This helps you spot potential cash crunches well in advance, so you can take steps to seek capital early on. Applying for financing while your business finances are still in good shape boosts your chances of approval.
If your prices aren’t high enough to make a sufficient profit, your business will slowly fail even as you bring more and more customers on board.
Solution: Use your industry’s benchmarks for profit margins, as well as your own sales and financial projections, to calculate your desired profit margins. Review what competing businesses in your area charge. Undercutting others on price rarely works for a small business; instead, figure out what value you can add to justify higher prices.
When your business needs financing, you may think it’s hopeless because you’ve had trouble getting a small business loan in the past, or you don’t meet lenders’ criteria.
Solution: Think outside the box. Traditional bank loans aren’t the only source of financing. Equipment financing, invoice financing, merchant cash advances, or even using credit cards could work for you, so investigate all your options.
Many small business owners view marketing as an expense, and try to cut it to the bone. As a result, they never build brand awareness, generate leads, or create buzz. Then they wonder why their businesses aren’t growing.
Solution: Marketing is an investment, not an expense. Depending on your industry, goals, and stage in business, the percentage of revenues you spend on marketing might vary from 2% to 20%. Research benchmarks for your industry, and be willing to invest. If a $2,000 ad campaign could land a $20,000 client, isn’t that worth it?
When you land a new client or partnership, do you get so excited that you jump right into doing business based on a handshake or a casual email? That can cause huge problems—up to and including lawsuits—if something goes wrong or a misunderstanding arises.
Solution: Always insist on a written contract before providing a service or product or entering a business relationship. Use templates at websites such as Rocket Lawyer to draft contracts for common situations your business faces, and then have an attorney review them.
Accounting isn’t most people’s strong suit. As your business grows, you might be tempted to hand it over to a bookkeeper and stop paying attention. This puts you at risk of cash flow problems, embezzlement, or worse.
Solution: Even if your bookkeeper handles day-to-day accounting, you must understand accounting basics. Find courses in basic accounting and how to use QuickBooks at your local community college, SCORE, or nearby Small Business Development Center (SBDC).