Becoming an entrepreneur and opening your first business is thrilling and rewarding, but it's not without its risks. After all, so many that are inspired by the American dream and the glowing success of startups, fail and close their doors for good. Today's post will discuss the five most common small business pitfalls as well as how you can avoid them and come that much closer to lasting success.
Pitfall: You Don't Have a Business Plan
How to avoid it: You most likely have determined short and long term business goals that you'd definitely like to achieve. However, simply having the goals is not enough. Bearing in mind that your business does need to be flexible to adapt to changes in the marketplace, your business plan should be a document you use as a guide to your strategy for managing and growing your business, securing funding, developing products and services, hiring or contracting workers, etc. It needs to be long enough to be meaningful (cut the fluff and flashy verbiage) and short enough to be actionable. In fact, you should consider having an overall plan for future growth while also utilizing smaller quarterly or annual plans to help keep your business' momentum, budget, and marketing at pace. In fact, having a business plan is the basis for how to avoid the other pitfalls in today's list.
It's also worth noting that having a detailed plan will also let you understand what kind of work you're really in for. Plenty of entrepreneurs don't understand the full demands of a new business to begin with, and this will help ensure an appropriate work-life balance.
*note business plans for funding needs may be more detailed and need the services of the SBDC Capital Access Team: www.OSBDCN/CAT.
Pitfall: You’re Not Developing a Thorough Budget
How to avoid it: Your budget should go hand in hand with your business plan, especially since new businesses take time to get into the black. Having a business plan that outlines the budget you have for payroll, overhead, and marketing means you know exactly what you need to spend, exactly where you can cut back if you need to, and when you need to seek additional financing before your business is under water. Having a budget also means that you're ready for seasonal changes, and can save revenue during financial high tides so you can stay afloat when the low tide would otherwise leave you on dry land. Again, your budget needs to be actionable but flexible enough to function when the market changes.
Of course, as a new business owner, you may not fully understand what your business budget ought to look like. A good starting place is tapping your local SBDC, banking partner or accountant to discuss your short and long term goals.
Pitfall: You’re Ignoring Marketing
How to avoid it: It can be tempting to assume that marketing is a secondary or even tertiary concern for new businesses, especially very small businesses or startups, but that simply isn't the case. The truth is, your customers have more choices than ever, not to mention better access to more information than ever. Bear in mind that in a highly mobile word where businesses are fighting over micro-moments, if you want to capture new customers and keep existing ones, you're going to have to market early and market often. What that looks like for your business specifically will vary, of course, but this is another area that needs to be coordinated as a part of your business plan and budget.
Planning a marketing strategy will help you set goals and determine the metrics you need to track success or redirect failure. It also means you'll know what research you need to do to determine which marketing channels are best suited to your audience, not to mention determine the limits of your marketing budget.
Pitfall: You’re Not Keeping Detailed Financial Records
How to avoid it: We hope that proper accounting seems like obvious business advice, but you'd be surprised to discover how many businesses end up failing because of mishandled finances. Your first step is setting up a bank account that's separate from your personal bank account; this will keep business and personal expenditures clear for the IRS, come tax season, and it will ensure that your business funds don't rob your personal life blind. It will also help you maintain your personal finances and credit scoring. Your second step should be to take advantage of one of the myriad options for business record keeping rather than trying to do it all by hand or develop a new one from scratch. This will make tracking, whether or not you're sticking to your budget plan, a lot clearer, plus make various accounting basics like payroll easier to handle.
If it's possible, you should probably hire a bookkeeper As an entrepreneur with a new business, there's already a lot of new regulations, best practices, and concepts you need to juggle. There's no reason to try to teach yourself business accounting on top of it all while trying to keep track of which financial regulations do or don't apply to your business at a given stage of growth.
Pitfall: You’re Growing Your Business Too Quickly
How to avoid it: If your business is doing well for longer than a hot second, that means it's time to expand, right? Not necessarily, and this is another point where having a business plan is vital. It's all too easy to let the rush of success go to your head, and over-expansion is just as risky as the failure to grow your business, not to mention a more expensive one. Any growth, as well as both vertical and horizontal expansion, needs to be a careful, deliberate choice based on your financial trends. Rising demand with healthy cash flow, and inventory moving at a pace to match it, is a good sign that growth is a healthy option, but if any point is too weak to support it, the results could be disastrous.
Now that you're more familiar with the most common new business pitfalls, you should take a good look at how you're handling your business. Determine the areas that you can strengthen, and consider finding a business mentor that can help you nail down your business blind spots.
