There is little more exciting than having an idea for a revolutionary product or service and preparing to share it with the world. Starting your own small business lets you work for yourself and directly reap all of the benefits of that work. However, small business startups can fail swiftly if their owners aren’t prepared for the effort they require.
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Below are ten mistakes small business startups make that can derail even the best concept. Refer to this list when you develop your own business model to sidestep as many pitfalls as you can.
- You don’t have a proper business plan…or any plan. Any large adventure requires pre-planning – would you vacation in Europe without a place to stay or a way to get there? Entrepreneurship is an even larger-scale adventure, so it requires a larger plan. Write up a business plan in which you identify your target market, determine the best way to reach them, and map out your profit potential (including how long it could take to turn a profit).Can you change your business plan? Of course! The best small business plan is flexible enough for you to quickly adapt to changes in the market or in your company.
- You don’t have enough cash saved to support yourself. You still need to eat and live while you’re building your business. Make sure you have enough cash not only to make your initial investments in the business, but also enough to meet your personal expenses for at least a year. Add your financial outlays to your business plan, and consider keeping a day job or primary source of income while you get your business going.
- You have unrealistic expectations. If you are ignorant of the obstacles your business may face, you need some perspective. Every business faces typical challenges – attracting new clients, sluggish demand for a new product – as well as others that may arise unexpectedly. While you must be confident in your abilities and your potential for success, you must also acknowledge factors that can sink your business before you even get started.Solicit some unbiased feedback about areas of your business that you can improve then address them before you launch. Add them to your business plan so you can review them at any time!
- You do everything yourself to cut costs. Stop right there. You obviously have to put a lot of work into your business to see it succeed (we’ll address that later), but you also have to work smart. What do you bring to your business in terms of expertise and experience? Where is your input most needed?If you don’t focus your energy on the areas of your business that will make you money then you won’t make money. It’s worth it, for your business and your personal health, to bring on one or two people to take care of non-income producing activities such as administrative work and managing your inventory.
- You hire employees you don’t need yet. On the other hand, you don’t want to build a staff that your business isn’t ready to handle. Hiring for the business you want is not the same as dressing for the job you want and can wipe out your operating budget. Having employees requires you to pay for insurance and employment taxes, pay your employees (obviously), and increase the records you will have to keep.Focus on a small number of essential support positions that you cannot function without, and wait to expand your team until you need it (and can afford it).
- You over-invested in equipment and space you didn’t need. Before you rent office space or purchase all-new equipment, take a hard look at each purchase and decide if you really need it. (Probably not.)Believe it or not, you can run your small business startup using your personal computer and space you carve out in your house. Not only will you save money on rent and costly modifications to a commercial space, but you may also qualify for a home office and other tax deductions for using what you have on hand.
- Your cost-cutting plan is to spend nothing. Don’t be so careful about overspending that you end up suffocating your business. Instead, decide what resources you will need the most and find a cost-effective way to obtain them. For example, look for deals on older or refurbished models of office equipment if you don’t have it already.If your small business offers a product or product line, do not skimp on its production. Look for deals on the materials you need, but do not sacrifice quality. An early investment in a superior product will more than pay for itself once your business ramps up.
- Your pricing is out of touch. Correctly pricing your product or service is extremely important to your success. You may know the risks of beginning with a high price, but pricing your product or service too low is also risky. You don’t want your target market to associate a low price with low quality. Research your competition and your production costs before you set a price point, and don’t be afraid to price yourself slightly above your competitors if you offer additional benefits or a better product. (You can always offer incentives later!)
- You want to start at the top. It’s easy to imagine yourself enjoying the fruits of your labor – but don’t get so caught up in those dreams that you forget to put in the labor!There is no shortcut to success. You must be fully committed to your plan, passionate about reaching your goals, and dedicated to every step. Use those visions of your success to motivate the work you do and surround yourself with people both professionally and personally who support and further motivate you.
- You aren’t prepared for growth. After going through the mistakes above, you may be reluctant to plan for success. Don’t be! If you have a good business plan, a balanced perspective and a solid foundation, and you put in the work, then preparing for the growth of your small business is necessary to keep the momentum going.The first part of your growth plan is to decide how you want to grow – opening more locations, offering more products or more extensive services, etc. Once you establish that, you can plan what you will do to get there. Planning for growth will help you change direction quickly should the need arise.
Most importantly, be financially prepared for growth. Even if you do everything else right, lacking the capital to support a growing business can turn your success into failure.
Factor Finders helps small business startups turn their early invoices into the cash flow to keep working toward success. Contact us to learn more about small business factoring for startups in your industry and to get started right away!