Every business makes mistakes and while they can be opportunities to learn, making too many can be the reason for failure. Knowing the biggest mistakes to avoid will give your small business or startup a competitive advantage.
Running a small business can be a minefield; there are potential dangers everywhere. While gaining the experience of mistakes can be invaluable, each one has the potential to stop a business in its tracks.
There are many easily avoided traps to fall into, here are the biggest small business mistakes to avoid:
The 3 Biggest Mistakes Small Business Owners Make
Not knowing the numbers
This is important because many small business owners don’t understand accounting. Even though not everyone enjoys doing their accounts, owners must know what their bottom line is, including profit and loss and sales forecasts. Ignoring these restricts potential investment opportunities.
Business accounts show where a business is succeeding, where it’s failing and the potential benefits of outside investment. You have to understand your numbers. It is the first question asked by investors in the Dragon’s Den!
Underestimating cash flow
Cash flow is a huge challenge in every business, but none more so than for startups and small businesses where margins are tight. Without cash, wages cannot be paid, material cannot be bought and repayments cannot be made. Never underestimate your cash flow.
Not being able to think ‘BIG’
Starting a small business is often done either for the love of it or because business owners see an opportunity to make money. Whatever the reason it still needs to be capable of growing in order to compete in whatever sector it is operating in. If it cannot think big enough it will get swallowed or out-manoeuvred by the competition. If you can think big, you can become big.
5 Startup Mistakes To Avoid
Handing in your notice too soon
When people get great ideas for a business they need to use the advantage of having a full time position for as long as they can, because every new business needs time to be planned out properly. Not being employed means there is no income and this can put a lot of strain on a new enterprise in its early stages. So, before you quit your job, complete as much new business planning as you can.
Don’t run before you can walk
Doing too much, too soon, can burn out both small business and owner. Most small business owners want to do everything at once and do it at 100mph, but this might not be the most sensible course. Rushing through any of the stages of a new business can lead to overstretching its capabilities or worse, overspending. Demonstrating the restraint to pace both yourself and the business is a delicate balancing act to get right.
Adopting the wrong business setup
Picking the wrong business setup can cost money. Depending on the product or service, this will dictate whether it is best to operate as a sole proprietor, a partnership or a limited company. To understand the best business set up for you might require consulting with a business development professional; someone with experience of your industry and the potential ownership pitfalls.
Assuming revenue will automatically appear
Without the proper respect paid to sales and marketing, even businesses with great ideas and great products either don’t make it, or worse, fail to get noticed. If you don’t shout about it, people aren’t going to hear you. The most successful products are always the ones which have the best marketing behind them.
Mixing business finance with personal finance
It can be difficult sometimes to keep business finance separate from personal finance, but it is surprising how mixed up they can get. A good way of avoiding this is to set up a business account and then make sure that all personal finance stays separate. Any funding lent to the business needs to be documented properly.
5 Business Planning Mistakes
Straying too far from your business plan
Belief and confidence are valuable tools in your small business armoury but so is having a business plan. If your business plan doesn’t answer some key questions, including sales forecasts, market opportunities and customer acquisition then investment won’t be easy to secure. Your business plan should be flexible enough to take into consideration all possible financial scenarios but be rigid enough to have an answer for them.
Using other people’s money
If external investment isn’t possible then, for some, there is the Bank of Mum and Dad - even Richard Branson borrowed from his Mum for his Virgin Records venture. But this also comes with a heavy burden of responsibility. If either party are not 100% clear on what will happen to the money or the returns involved it can lead to animosity and distrust, and ultimately test the relationship.
Launching a business too soon
There’s nothing wrong with wanting to open up your business as soon as possible, but only if the business is ready to do so. A business launch can be a stressful time for owners involving a never-ending amount of tasks while the countdown to launch day gets nearer. In these situations it can be easy to forget about the customer. Preparing for launch day can be overwhelming, however the big question should still be, ‘will my customers get everything they need?’ They will if you have spent enough time completing market research and ensuring your business is ready to serve them.
The customer isn’t always right
When a new business starts, it is tempting to over-promise to customers. Trying to outdo the competition is a strategic goal, especially for those owners who have left a similar business to startup on their own and want to take customers with them. However, offering everything a customer wants, like a bigger credit facility, or longer payment terms, or ridiculous lead times, are all going to eventually eat into profit margins. Offering better prices is one way, but so too is setting apart the quality of your service. Always be careful of adjusting anything that affects your ability to make a profit.
There’s no substitute for business experience
Being a business owner doesn’t automatically make you an expert leader. You may be a great salesperson, beauty expert or mechanic, but that doesn’t mean you’ll be the best boss or have the right experience for running your first small business. If you don’t then it makes sense to learn. There are plenty of business management and business administration courses available, both offline and online. While this won’t replace actual experience, it will prepare you for some of the management challenges of being the boss.
Common Mistakes Your Small Business Will Encounter
Underestimating the power of marketing
This might be one of the most frustrating mistakes, especially if a product is ready for launch. When your product or service is ready and you know it is the best available, it will still mean nothing if no one knows about it. When you don’t have enough customers, but your product or service is a good one, you’ll quickly discover that your product marketing hasn’t been thorough or effective. This highlights the need to fight hard for your space in the industry, aligning yourself with key customers and ensuring your product marketing is aggressive enough and as targeted as it can be.
Not working hard enough
Are you working hard enough on your new business? There’s often a fine line between not working hard enough on your business and burning out. You need to find it. Most small businesses fail, not because the idea wasn’t good enough, but because not enough effort was put into it to become successful. We all know businesses that should have worked, but didn’t like the Pebble smartwatch. To be successful, you need to work harder and smarter, not just want to be the best, but actually be the best!
Not hiring the right people
Hiring new people for a small business is often a make or break moment. When done properly it can help owners realise their dreams and ensure that a new business succeeds and grows. But get it wrong and they can bring it crashing down. This often comes as a dilemma between choosing friends and colleagues or spending more to get people in with real skills. But the decision-making doesn’t end there. The crunch comes in understanding whether, as a business owner, you can truly trust your employees to deliver in tough situations. If you can’t, you don’t have the right employees.
Finally. Don’t give up too soon, have a solid financial plan
Don’t give up on a new business too soon because sometimes it just needs a little push in the right direction. The biggest note taking and organisational app, Evernote, almost closed its doors before finding the investment it needed to become what it is today.
Very often the real ace up your sleeve is to have a solid financial plan.
Being able to borrow debt responsibly is a key tool in ensuring financial security for your business whatever obstacles are in your way.
A solid financial plan should be in place that can move with your business to ensure that you are always able to borrow sensibly and preserve working capital and cash flow throughout your business development. This will ultimately help you to grow your business and keep it profitable.
Whatever the obstacles in your business’ way, don’t let these mistakes be one of them.