Starting a new business is a risk. There are many things that can go wrong during the early stages of your new business, some of which are out your control, and some that are within your sphere of influence.
There is not much you can do about consumer confidence, financial crises, or natural disasters. However, there are many other aspects of setting up and running a business that, as a business owner, you have the power to control. What’s more, many of these things have the power to make or break your business.
Get them right, and you are on the road to building a successful business. Get them wrong, end you may become one of those businesses that ends up failing in the first few years. Here are the most common mistakes small business owners make when starting their new venture.
1. Insufficient Starting Capital
You may have the best idea in the world, but if you don’t have the funds to back it up you unfortunately won’t get very far. One of the main reasons that small businesses fail in the early stages is that they don’t start off with the capital they need. It is essential that you have enough capital in place to take you through the first few months or years until your business starts to turn a profit, to deal with unexpected expenses, and to accommodate any issues or problems. In addition to great planning and having enough capital in place, securing a business credit card or line of credit is a great way to be prepared for unforeseen expenses.
2. Resisting Taking on Debt
As well as having enough capital in place, many small businesses may also need to take out a loan (or loans) to cover the early stages of their business. You may be worried about getting into debt, but resisting doing so can actually be very harmful for your business. Failing to take out loans to cover the things you need to grow your business means you will probably put a ceiling on the growth of your business. Going into large amounts of debt to cover a business that is failing is not a good idea, however small, strategic debt to support growth of a business that has had initial success is a great investment.
3. Starting Without a Business Plan
Far too many small businesses are launched and start operating without a formal business plan. Many small business owners only look to make a business plan when they need one for an external stakeholder, like a bank or an investor. However, having a strong business plan in place right from the start is one of the keys to your business being successful. This lays out where you want to go and how you’re going to get there. Not having a plan is like getting in the car in an unknown city and trying to navigate around town without looking at a map!
4. Failing to Set Up a Separate Business Account
It is important that when you take payments for your business, these go directly to a dedicated business account. No matter how small your venture, it is essential to keep your personal and business finances separate. This is essential so you can see how your business is tracking, and avoid draining your personal finances to fund your business. Mixing your personal and business finances may also get you in trouble with tax authorities, so keeping books, accounts, and everything else separate is critical. Finally, this will help your to psychologically separate your work and personal life – this is important for your long-term sustainability as a business owner.
5. Not Knowing Your USP
Your unique selling point (USP), is the thing that makes your product or service. This is essentially what makes your customer buy your product, and is the reason that your business exists. Not having a clear idea of what your USP is and how to communicate it can be detrimental. If you can’t tell customers why they should buy your product, what makes you think they will?
To work out your USP, conduct a competitive analysis of your product compared to your competitors. Consider:
- What features are unique to your product?
- What is different about your manufacturing process?
- In what ways does your product perform better than your competitors?
- What sets your service apart?
6. Bad Management
Unfortunately, there’s no denying that another very common reason that small businesses fail comes down to the owner. Management is crucial to any business, and in a small business, management is you. As manager, you set the tone for the rest of the team, encourage them to be as effective as possible (or not), and are ultimately responsible for the performance of the company. One of the biggest mistakes that new business owners make is thinking they can manage every single aspect of their business themselves. Not only can this overload you meaning that you get burnt out and things get done, it usually also means you do things that you’re not so great at, and would have been better outsourced. Put your energy towards the things you’re best at, and hire others to do the rest, whenever possible.