5 Common Mistakes to Avoid as a Small Business Owner
It is easy to ascribe mistakes in our personal lives to the motto “You live, you learn”. However, mistakes in business are not as easy to shrug off. Poor business decisions can have adverse financial and legal implications for your company, prematurely end your dream of entrepreneurship, and even impact the security of your family.
Although all businesses face an ever-present threat of closure in today's unpredictable economic, technological, and socio-political environment, new businesses are among the most at risk of failure. Fifty percent of all start-ups in the US close shop within 5 years. While the underlying reasons for failure of a business are often complicated, there are certain errors that many new business owners tend to make.
Detailed planning, careful execution and continuous focus on learning more about your business will improve your chances of succeeding in a highly competitive market. As the owner of a growing business, here is a list of common small business mistakes that you must avoid:
Investing a large amount at the beginning
Starting your business with a large amount of debt, be it money you owe the bank or your family, places immediate pressure on you to start making profits. A bank loan puts the additional financial strain of paying a monthly installment. A wiser move would be to have adequate savings to begin your business. Work with a shoestring budget and wait for cash to start flowing in, before you decide to invest further. Also, ensure that you have an alternate source of income or enough savings to meet your personal expenses for the next one or two years.
Failing to develop a detailed business plan
A business plan gives direction on all aspects of your business, including:
- How much money do you need to get started?
- What additional funds will you need as the business picks up over the next few months/ years?
- Who are your customers and how will you market to them?
- By when can you expect to break-even?
- How many people do you need to employ initially and at a later stage?
- What will be your product distribution strategy?
- What are your strengths and weaknesses as a business?
A business plan also helps identify priorities when you are confronted with conflicting business decisions.
Failing to keep track of the cash
Cash is the lifeline of your business. Focusing mostly on sales numbers and extending credit to too many customers can lead to a business cash crunch. Yet, many new business owners don't know how to even read a cash flow statement. It is imperative to learn how to monitor this crucial metric of your business.
Charging significantly lower than competition
Slashing prices to attract the initial flow of customers and get the word out, is a strategy that works best only in the launch phase. However, undercharging what you sell can undermine your cash flow and make it difficult to raise prices later on with existing clients. You don't need to have the lowest price in order to get business. Reasonable pricing coupled with quality product and service will drive customers to your door.
Not hiring people with the right expertise
One of the biggest mistakes start-up entrepreneurs make is trying to do everything themselves. While you undoubtedly know your business the best, you cannot be the master of everything. If your business is to grow, you need to hire people with expertise in specific fields such as accounting, website optimization, and marketing. Hiring skilled people can help you achieve success faster, and at a larger scale.
Starting a business is demanding and often times stressful. Therefore, it is equally important to strike a work-life balance, and ensure that you get adequate rest and exercise to remain fighting fit for the challenges ahead.
What mistakes have you made as a small business owner, and how did you overcome them?