2022 is the year when you will finally realize your dream of starting your own business or proactively growing the one you already have. It is an exciting time, full of promise and possibilities.
Unfortunately, there are also a few pitfalls. The United States Bureau of Labor Statistics reports that about 20 percent of new businesses fail in the first two years. Upfront expenses can also be a daunting factor. Depending on your business, you may need to invest several thousand dollars before opening your physical or virtual doors.
Don’t be dissuaded, however. There are many benefits to having your own business, from monitoring your schedule and maintaining independence to unlimited financial rewards and the opportunity to be innovative in your field.
With the right strategy, you can overcome the challenges that many new business owners face, including funding and organizational issues. It is also essential to manage your finances correctly and consistently.
4 mistakes to avoid when starting a small business
As the old axiom says, knowledge is power. By understanding the most common mistakes made by other entrepreneurs, you can take steps to avoid them. Here are the top four mistakes that drag new small business owners down.
1. Neglecting to make a business or marketing plan
You can have a revolutionary service or product, but it won’t matter unless others know it. And word of mouth will not be enough for most businesses. One of the first things you need to do is develop a business plan with marketing in mind.
It’s essential to research where your customers or customers hang out online, says Dequiana Jackson, small business marketing strategist and CEO of Inspired Marketing. Know where they’re posting, engaging, and sharing so you can create meaningful content that isn’t only compelling, but reaches them on the right platforms as well.
“If your business is B2B, your customers may be on LinkedIn looking for advice on growing their small business,” Jackson says. “If you have a product-based business, your customers may be on TikTok and YouTube looking for product tutorials.”
Also, be sure to conduct market research to identify any gaps that exist in your industry. Uber, for example, entered the market when there were already several transportation options. But he was addressing the fact that there was no easy way to order on-demand transport services. Uber has filled this gap.
“Even in less innovative companies, you can create a competitive advantage,” says Jackson. “Maybe the standard for getting a product into the hands of customers is six weeks, and your company has systems in place to reduce that to three weeks. This is a benefit that customers will appreciate. Improved customer service is also an easy benefit for small businesses that can provide a more personalized shopping experience, like special packaging and handwritten thank you notes.
A business plan that incorporates marketing will help you and your team because it provides clear direction. “You have to know your target market, the products and services you want to offer them, and the competitive edge that will help make the sale,” says Jackson. “It saves money because you can focus your advertising efforts only in areas where you know your ideal customers will be receptive. Your marketing plan should also help define your brand, the way you present yourself in the market to your customers.
2. Try to do everything yourself
There is a time to tinker and a time to delegate. Be sure to respect the difference. Hiring people to take on tasks you can’t realistically handle will be money well spent, says Neale Godfrey, small business consultant and author of Money Doesn’t Grow on Trees.
“You have to accept that you are not an expert in everything,” Godfrey says. “A lot of businesses fail because the entrepreneur is unwilling to hand over the reins to other people who could do it better. Yes, it is your idea, your baby, and you are protective about it. However, bringing in experts will free you up so you can do what you do best.
By delegating responsibilities to trusted staff or consultants, you will have more opportunities to focus on your product or service. Having a team that will work on your mission will not only provide you with valuable information and assistance, but you will also appreciate the opportunity to take a break, take a step back, and develop ideas.
It doesn’t mean that you are completely relinquishing control. Whether you hire a designer to help you with the look of your cafe, or a developer for your website, maintain regular involvement. If they take too much liberty, the project may turn into something you don’t want. You always have the last word. Remember, your name and your finances are at stake, not theirs.
3. Skip the paperwork
As wonderful as it may be to just lay your shingle down and announce that you are open for business, you need to follow proper protocol. Many small business owners find themselves in hot water because they did not submit the proper documentation. Essential documents include:
Permits and licenses. There are specific licenses or permits that your business may need to get started, and you can find them from the Small Business Administration. Contact the SBA if you have any questions.
Company structure. If your staff is a group, you can be and remain a Sole Proprietor. Or you can start as a more formal business. “The most simplistic business structure, at the beginning, will usually be the best,” says Godfrey. “For many, that means starting as an LLC to protect your personal assets.”
State and federal tax identification numbers. An Employer Identification Number (EIN) is similar to a Social Security number, but it is specifically for your business so that you can pay state and federal taxes. If you are a sole proprietor, you won’t need an EIN and can use your Social Security number instead.
Company Name. Once you know what you want your business to be called (and made sure it isn’t already taken), you’ll need to register it with the state you operate in and possibly with the federal government.
Corporate bank account. You want to avoid mixing up your personal and business finances, so open a designated business bank account. It will also help you manage your taxes. You will need your personal identification and that of all co-owners with more than 25% of the capital, the EIN of the company (if you have one) and the name and address of your company. You will also need to list the legal structure of your business.
Health insurance requirements. Small businesses with less than 50 employees are not required to offer health insurance, but if you plan to grow quickly, be prepared.
4. Do not have a budget
And then there is the money and the credit. Zainep Mahmoud, Senior Commercial Director at Capital One, emphasizes the importance of creating a business budget for current and planned expenses. “Budgeting early is often a core practice for managing cash flow,” says Mahmoud. “Positive cash flow is what keeps a business afloat and drives growth. “
Creating a budget in advance will help you determine how much money you’ll need to meet financial commitments like payroll, rent, and inventory. With the unpredictability of today’s economic landscape, you’ll want to plan for several different potential scenarios. This way, you will have backup plans and budgeted budgets ahead of time.
To manage costs in the short term, get a business credit card. Not only are they safe and convenient payment tools, they are also specially designed for the small business owner. They tend to have high credit limits and you can buy what you need without using all of your capital. Plus, you can pay over time if needed.
The perks, rewards and perks are also different from what a personal card offers. “Using a business credit card as your primary purchasing solution for business expenses such as inventory, equipment, software, advertising, and shipping could net your business thousands of dollars. form of rewards, ”Mahmoud explains. When cash is tight in the early stages of your business, the rewards you can reinvest will provide some financial relief.
To keep everything tidy, consider investing in accounting software such as QuickBooks or FreshBooks. However, do not hesitate to hire an accountant if you are not into it. “If you’re having trouble or just don’t have the time to focus on managing your finances and staying on a budget, that’s a sign to call in an expert,” Mahmoud explains.
The bottom line
Starting your own business can be an exciting but stressful experience. You’re going to make your own mistakes, but it’s also good to learn from other people’s mistakes before you make them.