Having your own business doesn’t always necessarily spell guaranteed success. In fact, according to studies, businesses are most likely to fail within the first five years, with 20% of new businesses folding within their first year and 50% within their first 3 years.

Small business entrepreneurs, especially the first-timers, often have to become a jack-of-all-trades, handling all operations from sales, marketing, product development, customer service, database management, human resources and everything in between to keep their businesses growing. There are bound to be a few who fall into cracks so it’s important for entrepreneurs to identify and focus on what matters.

This guide looks at the five common mistakes of new small businesses and how you can avoid them. When you know the most common pitfalls, you actually improve the chances of your business succeeding. With awareness of the issues and hard work, launching a new business can be a great success and most importantly, you can sustain it.

Common Mistakes of Small Businesses

1. Failing to Plan

Failing to plan is planning to fail.

This is the most common mistake small business owners make. Running a business without a plan isn’t sustainable and would often just lead to short-term success. Poor planning will increase your chances of making business mistakes and will reduce the probability of achieving your goals. We all know we need to have a plan to get a business started, but we are not talking about just a plan in your head.

Planning involves research, budgeting, forecasting and goal-setting. Research is necessary to ensure that your idea is viable and lets you learn more about competition in the market, allows you to set competitive pricing and ensures you are not selling your services or goods short. Budgeting allows you to keep track of the most important part of your day-to-day operations – cash – and allows you to make sure you maximize your profits. Forecasting and goal-setting can give you direction when you first start your business, then keep you on track during the day-to-day operations. By making sure your goals are SMART (specific, measurable, attainable, realistic, time-sensitive), you can identify where you want to go and outline specific steps that you will take to get there.

How to avoid this mistake:

Have a business plan, a financial plan and a marketing plan.

•  A business plan will help to secure external funding like a loan, pre-empt problems and measure how well your business is doing.

•  A marketing plan will take into account your target customers, your marketing objectives and will help you set goals to address these.

•  A financial plan is extremely important. A lack of capital and lack of a contingency plan can all bring major problems. Without a contingency plan you can leave yourself exposed to the unexpected. And in running a business, there are always surprises. Seek professional advice if needed. Hiring an accountant or financial adviser can help you borrow and manage money cost-effectively.

2. Poor Money Projections

We deal with three usual mistakes: undercapitalization, overspending and under spending.

Most entrepreneurs often think that they can start their business with just enough capital, relying heavily on incoming sales volume to keep their businesses running. This is a mistake.

Cash is King

Small business consultant Barry Moltz, who is the author of numerous books, most recently Small Town Rules: How Big Brands and Small Businesses Can Prosper in a Connected Economy, has this to say, “When I sold my business in 1999, I couldn’t read a cash flow statement.” And he wasn’t alone. “A full 95% of small business owners I talk with don’t know how to read them,” he says, and that contributes to a pervasive problem: “Most people focus too much on sales and profits, and not enough on cash flow.” Cash crunches are generally what sink small businesses, he says, so learning to monitor that metric is critical.

While your business can survive periods where there are no sales or profits, it cannot survive without cash. Building up cash reserves will ensure that you keep your business running.

How to avoid this mistake:

•  Be conservative when projecting growth but have more than twice the projection when doing a forecast on expenses. You will be able to identify which areas need budget cuts and which areas need to be prioritized. Do not rely on money that isn’t there yet. Work with what you have. You don’t want to run into debt too soon.

3. Inconsistent Marketing

A common mistake in many businesses is the assumption that you don’t need to market or advertise your product or service, and that business will simply come to you. Another common mistake is not marketing consistently.

Here is the truth: Customers need to know you exist and be convinced to buy your services or products. Otherwise, you are not running a business but a hobby. Once you have gained customers from your initial marketing efforts, you need to sustain them. Make them come back!

How to avoid this mistake:

•  Advertise on a daily, weekly and monthly basis, depending on the marketing task.

•  Remember that advertising can assume many forms – word of mouth referrals, to traditional advertising, to Internet marketing. There aren’t any set rules when it comes to marketing; the best type of marketing for you depends on your business and your target audience.

4. Hiring the Wrong People or Failing to Delegate

A large and crucial part of your business will be human resources. As a small business owner, it is often necessary to take on the different hats of your day-to-day operations  at the start but as your business grows, it will be necessary to recruit people to help you. Failing to delegate could mean you take on too much work, this can increase your stress levels.

How to avoid this mistake:

•  Remember that part of your business’ success will be determined by the manpower you recruit. Think of them as an investment. When you see your employees as an investment, you will take this seriously and hire the best for your team.

•  Identify a few tasks you do on a daily basis and decide whether it should be done by you. If it can be done by another team member, hand it over to them so you can work on the entrepreneurial side of the business – marketing, financial planning and goal setting.

5. Giving Up too Early or Throwing in the Towel Too Late

A business expert once said that there are no poor business ideas, just poor business planning, marketing and financial handling.

Giving up too early would mean that a business owner wouldn’t have fought enough to keep the business afloat. Throwing in the towel too late would mean that you have not only exhausted all your capital but incurred some big debt during the process.

How to avoid this mistake:

•  Knowing when to throw in the towel or fight to keep the business alive will depend mainly on the business owner’s drive and determination to keep things afloat. By making sure you have carefully planned everything (having a contingency plan and SMART goals), you will know when to call it a day, close shop or keep fighting.

•  Don’t hesitate to seek advice from experts, seasoned entrepreneurs and financial advisers. They will refer you to people who can help (give you additional funding, refer you to another market for customers, etc) and give you tips to make sure you get back on your feet and make profit.

Assess your business and be your own critic, do you think you’re making one or two of these mistakes? It’s never too late to fix your business flaws. 

 

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