By avoiding some common costly mistakes, you can significantly improve your chances of making your business a success.
Small business owners may start out with high expectations, but according to the U.S. Small Business Administration, roughly 50 percent of them will fail within the first five years. Reasons for failure can be as varied as the risks involved in starting and managing any business. But there are some common mistakes that small business owners make that if avoided, can lead to the ultimate success and sustainability of their businesses.
Lack of planning. A great idea can be the inspiration for a small business, but the proper planning is what will get that venture off to a good start and keep it on track. As Steve Strauss, author of the “Small Business Bible,” points out, being aware of potential business problems before they arise is one way to avoid them. Every small business needs a realistic and comprehensive business plan, based on accurate and objective information. The plan should include a clear description of the business, the owner’s goals and the keys to success. It should also include an analysis of the competition, a marketing plan to position the business’ products and services, and a budget and cash flow projections.
Borrowing too much. Initial high expectations can work against small business owners when they lead to borrowing too much. It may take some time to start generating profits; large monthly debt payments in the early stages can sap critical cash flow that would be better invested in marketing and developing the business.
Spending too much. While a small business owner needs to have the necessary facilities and resources, spending too much on equipment and furniture, hiring too many employees and renting too much space can place too heavy a load on a start-up business. As pointed out by Nolo, it’s better to start on a shoestring. Then the business can be built up as it starts to generate profits and a positive cash flow.
Insufficient capital. While borrowing too much can sink a small business, insufficient capital can also derail even the best-laid plans. As indicated by Business Know-How, many small business owners underestimate how much money they will need and are forced to close before they have even had a chance to succeed. Small businesses can often take up to a year or more to really get going. It’s vital to have enough working capital to survive that period.
Inadequate pricing. Jay Goltz, writing for CNN Money, describes a home furnishings boutique that had great products and growing revenues, yet it was losing money. Goltz explains that entrepreneurs tend to concentrate on what they love. But every small business owner must also be the CFO. In the case of the home furnishings boutique, not paying sufficient attention to finances resulted in overlooking the need to raise prices.