We are in the age of the startup, where small businesses seem to be popping up left, right, and (increasingly) online. If you are ready to launch your small business, congratulations! You are about to embark on one heck of an adventure. To ensure that that adventure is a good one, rather than simply a horror story to tell your friends and family later, avoid these four mistakes small business owners commonly make.
Failing to understand business finances
Many people start a business because they are ready to work for themselves and they are driven by a passion. And that’s a good thing! But there is a lot more than passion that is necessary to run a successful business, and one of those things is an understanding of business finances. According to Eve Brown, CPA, who writes for the Small Business Resource Network, two of the top five pitfalls small business owners often fall into involve a lack of a proper understanding of business finances: a failure to develop a business plan and budget, and inadequate accounting.
A basic understanding of business finances starts with knowing how to read common business financial statements, like the cash flow statement. Small business consultant Barry Molz said in an interview for Forbes that “a full 95% of small business owners I talk with don’t know how to read [cash flow statements,” which leads to the problem that “most people focus too much on sales and profits, and not enough on cash flow.”
You don’t have to be a financial expert (for that, you should engage an accountant), but you should know enough about business finances to be able to read your statements and assess your financial position.
Not doing your research
How much do you really know about your target market? Do you know who your customers are? Do you know who your competitors are? You may have a great idea for a new coffee shop, but if there are already three coffee shops in your neighborhood, there might not be the population to support a fourth. For many business, competition may also include online companies from different parts of the world as well as companies that are offering product alternatives. Doing adequate research is absolutely essential before you commit your personal time and money to starting a business.
Not getting everything in writing
It would be nice if we could trust each other based solely on our words and handshakes, but unfortunately that isn’t the case, especially in the business world. As you enter into agreements, partnerships, and contracts, even if they are with people you’ve known for a while, be sure to get everything in writing. It may seem to you to be untrusting to require friends and acquaintances to sign formal agreements, but as a small business owner if something goes wrong you have a lot to lose. Better safe than sorry!
Not making time for non-business activities
As the owner (and potentially the only employee) of a new small business, you undoubtedly have no shortage of things to do. You could probably work 24 hours a day and still have things you need to get done. But you can’t work 24 hours a day, certainly not very effectively and not for very long. Dedicate the time and energy necessary to see your business grow and succeed, but don’t make it your entire life. If you do, you will burn out. Exercise, eat healthy, and make time for family and leisure activities. You will be more effective on the job if you take the time once in a while to clear your head.
There is no way to guarantee that your small business will succeed, but avoiding these common mistakes will at least put you on the right track!