Starting and running a small business can also be exciting and rewarding. It also takes plenty of hard work, commitment and know-how.
One of the keys to long-term business success is learning from the mistakes other entrepreneurs have made. Having a thorough understanding of the possible pitfalls can help you establish a solid foundation for your company from the start – and steer clear of problems down the road.
Here are 5 common startup mistakes to avoid:
1. Failing to plan
The expression, “Failing to plan is planning to fail" is especially true when it comes to launching a business. Writing a business plan can seem like a daunting task, but it is important to know what you are trying to accomplish in order to achieve success.
A good business plan does not need to be long or complicated to be effective. Even a simple one-page plan will help you focus on what you need to know in order to develop a thriving business. Regardless of the format you choose, your plan should include your vision and objectives as well as an analysis of the market for your product or service, the competition, and your prospective customers. You also need to assess the amount of money you’ll need to get started and operate your business, and the income you can expect to generate.
2. Poor cash flow management
All companies depend on cash flow, but managing money is not a skill that all small business owners have. Lack of funding or working capital is consistently cited as one of the primary reasons why businesses fail. Simply put, it doesn't matter how much money is coming tomorrow if you do not have enough cash on hand to pay your bills today.
There are numerous ways to manage cash flow – from staying on top of accounts receivable to eliminating unnecessary spending. Developing a strategy for optimizing your cash management not only makes it easier to plan and budget for future growth, but it helps ensure you have the funds to handle day-to-day business fluctuations.
3. Charging too little for products or services
It is common for new businesses to underprice their goods or services. You may think lowering prices will undercut the competition or you may not have done the necessary research. Whatever the reason, you may quickly find that you are unable to cover your overhead.
Never determine your prices based solely on what your competitors are charging. Invest time in determining a fair price for each of your products or services, and continue to monitor costs and make adjustments as needed.
4. Not asking for help
While many entrepreneurs start out juggling multiple responsibilities, they eventually need to delegate tasks in order to grow. Unfortunately, many small business owners are reluctant to admit they need help – and make the mistake of continuing to do everything themselves.
Know your limits, leverage your strengths, and hire employees and/or independent consultants who have the expertise you lack. In addition, be sure to surround yourself with trustworthy, experienced professionals who can advise you on financial and legal issues as your business evolves.
5. Choosing the wrong business structure
One of the biggest mistakes startups make is not choosing the right business entity. Putting off establishing a business entity or relying on the advice of friends and choosing the wrong structure can have serious consequences. For example, if you operate as a general partnership, you may discover that you are personally responsible for business debts you never agreed to. If you set up a corporation, you may end up paying higher taxes because you are taxed at the corporate and personal level.
When choosing a legal structure for your business, it is important to evaluate issues such as how easy it is to maintain, how it will impact your taxes and liability, and if you will have partners or shareholders. It is a good idea to seek the advice of an experienced attorney in addition to doing your research. Feel free to contact us with questions or concerns about starting your business at 973.707.3322 or LFarber@LFarberLaw.com.
The contents of this writing are intended for general information purposes only and should not be construed as legal advice or opinion in any specific facts or circumstances.