If you are thinking of starting your own business, you are probably aware that a huge percentage of startups and small businesses will fail in their first year of trading. But, a lot of the time, business failure can be avoided when you know the mistakes to avoid, particularly during those crucial first few months. Here are some common mistakes that new business owners often make when starting out.
Starting Without and Entity
A business license or registration is required to operate a business in the majority of states. However, this is a different process compared to incorporating or organizing a company. Bear in mind that you and your business partners can be held personally liable for anything bad that happens within the business if you do not register your business as a limited liability corporation. LLCs are the most common form of a registered entity since they are easy to operate at a low cost; check out these tips for getting started.
Capital, or money, is what partners, shareholders, or members of the board will contribute in exchange for their share of ownership of the business. Some businesses are capital intensive while others are capital-efficient, but in every business, it’s important to make sure that you have enough working capital to maintain positive cash flow. A lack of money is the number one cause of business failure, whether it’s starting out without enough money to cover everything or spending too much in the early stages.
Not Having Contingency Plans
Every entrepreneur has big dreams, but only planning for success is a big mistake to make. Sometimes, things do go awry and in order to achieve success, it’s important for new businesses to remain flexible in their processes and develop a contingency plan that can be followed if an idea isn’t as big a success as expected. For example, you might have a line of credit from the bank that isn’t used on a regular basis but can be crucial if you hit a rough patch.
Not Understanding the Market
Most entrepreneurs will be experts in their services or product and will know their industry intimately. However, it’s critical to understand whether or not customers are going to pay for their product or service. One of the biggest mistakes that new entrepreneurs make is relying too heavily on selling their product or service, without finding out if there is a market for it or getting to know the market well. It’s important to test the market before investing money into putting your product or service out there.
Doing Everything Yourself
Trying to do everything all by yourself might seem like an ideal option for saving money in the early stages, but in the long run, it’s not going to be a helpful strategy. You can’t run a business successfully if you are burned out, exhausted, and spending a huge amount of time trying to figure out how to do things that you don’t know a lot about. Having an accountant, a business attorney, and other professionals around you are key for building a strong business foundation and avoiding potentially costly mistakes.
Not Being Adaptable
Successful businesses are run by people who know that sometimes, things don’t always go as planned. If you’re completely in love with your idea and it’s not working out, you need to be ready to change your approach and adapt in any small or large way possible to make things work. Instead of being fixated on an idea that might not work, you will need to be ready to pivot.
Don’t fall for making any of these common business mistakes as you get started with your own company.