Roughly 80 percent of people who start a business fail within the first 18 months, and the failure rate is even higher for first-time entrepreneurs. The problem is that just because you have a great idea, it doesn’t mean you know how to run a business. Luckily, a little knowledge goes a long way. You can avoid the common pitfalls all entrepreneurs make in their first year of business with a little planning.
Business Planning
When you fail to plan, you plan to fail. Establishing goals and having a written plan or notes that explains the reasoning for those goals and quantifies how you will get there is an important part of the business planning process. In fact, almost half of all small business failures are because someone didn’t plan well. Starting a business is like baking a cake. You could bake one without a recipe, but it probably won’t turn out well. Even if it does, that cake won’t be half as good as one made using a recipe.
Managing Money
Business money should always be kept separate from your personal money, even if you are a sole proprietor. At a minimum, you need a separate business checking account and a reliable bookkeeping software. You need to know exactly how much money you put in the business, how much your customers spend, and how much it costs you to provide those products or services. Smart entrepreneurs also know that you keep some aside for a rainy day. Keeping your business and personal accounts separate will help you do that.
Keeping Up with the Pack
More than one out five business owners say that one of their biggest challenges is attracting new business. The reality is that most first-time entrepreneurs are so busy starting their businesses that they fail to keep track of what their consumers want. They spent, in some cases, years developing the concepts of their businesses. By the time they go to market, it could be a completely different world. Don’t let this be you. Do your market research or hire someone to do it. Make sure you understand your customers as well as your industry.
Drinking your own Kool-Aid
It is natural to think your company is the best and that your product or service is worth every penny, but if your customers aren’t on the same page you could be in for a rude awakening. As much as possible, you need to try to stay objective about your small business. There is always some company that is bigger, better, and cheaper — and if there isn’t right now just wait a few months. If you don’t drink your own Kool-Aid and maintain some degree of objectivity, you will be able to make more balanced decisions.
Starting your own business isn’t easy. Most people fail and not for want of a good idea. First-time entrepreneurs need to be careful because it is a slippery slope. Things like not managing money properly, failing to plan, not using market research, and drinking your own Kool-Aid can kill a business. Don’t let it happen to yours.