Common Mistakes You Should Avoid While Starting a Small Business
June 22nd at 2:05pm Published by sharpshooteradmin
There are more than an estimated 28 million small businesses located in the United States alone. These small businesses form a major chunk of all businesses located within the country, 99.7 percent to be exact. These figures go to suggest that numerous small businesses are competing against each other to make it big across the globe. Canada is no different from this phenomenon. The stable economic condition of the country means that several entrepreneurs are fulfilling their dreams of starting their businesses.
Knowing that you are here because you either want to start your business or have already started it, we congratulate you on the efforts as of yet. Starting your own business or actualizing your dream is an immense effort and you need to be commended for it. However, this is just the start of the journey. There are countless complications and other obstacles you will have to overcome for success as an entrepreneur.
While starting your own small business is a lucrative idea, we have to warn you of the competition that it entails. There are numerous other individuals with an entrepreneurial mindset that are lured towards this idea as well. Starting a business gives you numerous advantages, including:
- You can now manage your schedule. You don’t have to follow someone else’s schedule and can work according to whatever pattern seems best you.
- Your career grows with the business. As soon as the business starts going you start enjoying additional perks and responsibilities. Unlike a day job, where the growth of business never translates in the responsibilities and perks of employees, you will be able to enjoy every inch that your business grows.
- You will get the financial independence you require. You will have minimal profits, to begin with, and then might have to undergo numerous legal formalities when you begin to register your brand for shares, but the fact of the matter is that you’ll be more financially independent than you were before. This financial independence comes at no cost whatsoever, and you will easily be able to replicate it in your day to day life.
While things do look all shining and grand when you first start your business, let us warn you that not every small business goes on to achieve success. Interestingly, only one-third of all small businesses go on to survive for more than a year. The other 66 percent cease to exist after a year when their entrepreneurs are either de-motivated by the lack of results or don’t have the patience to persist with the idea that they had so much confidence in.
While the reasons for failure cannot be pinpointed for all businesses, we believe that what you do immediately after forming your business has an important role in defining the success that you go on to achieve in the long run.
Knowing the importance of what you do after starting your business, here we look at some of the mistakes you should avoid after you have set up your business. Entrepreneurs before you were guilty of these mistakes, and you need to take a step in the right direction by avoiding them altogether.
Go through these mistakes and make sure you avoid them:
1. Starting a Business without an Entity
The first thing you need to do after starting a business is to get it registered as a Canadian Corporation, Partnership, LTD or LLP. You need to realize that the business should operate as a separate entity and you shouldn’t alter your responsibilities with that of the business.
If your business is registered as a separate Corporation, Partnership, LTD, LLP or an entity, then your assets and liabilities would be counted separate from that of the business. This is a legal clause, which you need to understand in full with the help of a legal team.
This leads us to another sub-mistake, which is made as part of the broader mistake of not registering as a Canadian Corporation, not having legal help with you. If you’re serious about your business and want to take it into the long run, then you should have some legal help besides you at all times.
Imagine you have a long term dream of using your love for cheese and start a business focused on selling cheese to people. You’re very confident of the business, and start it with high hopes. However, when you start selling you realize that the formula you had used for processing cheese was corrupt and has led to a couple of people being ill from food poisoning. The people come after you, and take you to court for the poor processes. If your business is listed as a separate legal entity, it will be considered responsible for the damages. However, if that isn’t the case then you will be considered responsible for the damages.
Thus, you must have a legal team working with you from the word go, so that you can safeguard your interests during times of legal conflicts and can make sure that these conflicts don’t happen in the first place.
When you first start your business you are short on time and capital. You would preferably want to invest both the limited time and capital into the business so that your resources are expertly utilized. But, if you get yourself stuck in a lawsuit, you won’t just see your time being wasted towards means that could have been avoided, but will also see that you’ll have to pay numerous charges for penalties in the lawsuit.
Compliance is a growing need for businesses in today’s world, and you need to take the required action after realizing this. Have a legal expert with you in all times, so that you’re ready to be compliant with the law and don’t have any legal issues whatsoever during the first few months or years of your operation. You might be tempted into avoiding a legal team because of the cost savings, but we will ideally want you to be careful about this and invest your money where it is required.
2. Inadequate Capitalization
Also known as money, capital is what keeps your business going. We cannot emphasize enough about the importance of money in your day to day operations. Capital or cash is what finances your business forward, so it is pretty much the oil or gas that keeps your engine running. Without adequate cash reserves, your business would fail to have the monetary funds required for achieving efficiency in production.
Most business owners commit the deadly mistake of confusing cash with profits. The profits you make on a monthly or annual basis cannot be considered as an alternative to cash as such. Profits don’t pay for the operational expenses you have to meet at the end of the day, but cash does. You need to hence make sure that your profits don’t fool you into entering a world of make-believe where you think that you are doing well in cash.
The cash reserves you have for much of the initial part of your operations are dependent on the capital you have invested in the business.
The initial capital invested in the business will help define how well your engine is lubricated and how well the vehicle of growth keeps moving forward.
Most entrepreneurs end up investing too little into the business thinking that the business will end up financing itself after a few months of operations. Again, this might be easy to think about, but it doesn’t happen in the world of businesses and startups. Your business will only start funding itself after you have crossed the break-even mark. Crossing the break-even mark can take some businesses as much as a year while it can take half a decade for others.
Hence, you must have a sufficient amount of capital with you, as inadequate capital is also one of the common mistakes entrepreneurs make. If you do fall out of capital reserves, you must identify the situation and head for small business funding immediately. Do not allow your business to continue with meager cash reserves, there will soon be a sudden cost and you will be left wanting for possible options or reserves.
3. Planning Only for Success
A popular business adage used by successful business coaches states ‘you should hope for the best and plan for the worst’. Every business owner dreams big for their business and hopes that things will plan out the way they want to. But regardless of your good intentions, the chances of your business going out exactly the way you have planned are slim.
Your business will see many complications and might not even go ahead to see the light of day if you don’t have a proper contingency plan on the ready. You should always plan for failure. Well, you must know what to do if everything keeps happening smoothly, but it is necessary to also plan for failure if it happens.
Your business plan, the one created right at the start of your operations should have a detailed plan of action you will follow if things go awry. You should remain flexible in your processes and be ready for the realization of failure to dawn upon you.
You should know what to do for the worst possible option as well so that you aren’t left wanting at the time of a disaster. Planning can take the hassle out of a possible disaster, which is why we want you to be prepared from day one. Options like merchant cash advances can prove to be successful solutions for cash troubles if you have a strategy outlined beforehand.
4. Understanding the Industry, But Not the Market
We see many business coaches reiterating a thousand times that it is necessary to study the industry you are heading towards before you start your business. And, most entrepreneurs do follow this advice to study the industry around them before they start their business. However, many of them miss the most important detail of studying their market as well.
As an entrepreneur, you must know your industry and might even have expertise in the products and services within this industry, but you need to realize that there is more to the industry than just the general knowledge you happen to have it.
More than the industry itself, the market you’re operating in plays an important role in defining your business’s success. You need to know the intricate details within the market and how consumers inside of it behave. This information is relevant to your business and will help you improve your offerings for a better future.
Consumer behavior is also something that concerns you. Your target market must have certain characteristics that they display when shopping for goods or services. Try to know all you can about these characteristics and shape your offerings in a way that is meant to target these characteristics.
5. Trying to Do It All By Yourself
Even if you think highly of your skills and attention to detail, you surely cannot do everything by yourself. The sooner you realize this, the better it is for you.
Trying to do everything by yourself will not only hinder you from getting the specialization you require, but it will serve as an obstacle for growth in the long run. If you don’t hire the right people from the word go, you will find building a full-fledged team hard during growth.
Additionally, you need to set your priorities straight as a business owner. You can’t risk having messed up priorities. If you have too much on your plate, you will not be able to focus on what requires your attention. This will negatively impact you and your brand’s reputation.
During the initial period of operations, you would want to have your responsibilities prioritized. Go and attend the meetings, make the sales pitch and work with hiring new staff rather than focusing on doing everything yourself.
6. Working with Friends Instead of Business Partners
Most entrepreneurs often end up making the mistake of working with friends rather than business partners. Working with friends almost always means a lack of proper legalities and agreements. You trust each other to have each other’s back, but that isn’t the case when it comes to the world of business.
When you work with partners you have everything laid down in a legal agreement and both of you understand the amount you have invested as partners and the payback you are entitled to because of that investment. If you’re working with partners you would also be expected to draft an agreement on the shared responsibilities you will have. When it comes to working with friends, you don’t have an idea of what each friend would handle and the responsibilities that come under them. What if your partner has a day job to look after? Would you be considering that as part of the agreement? You might if you’re friends, but you will draft a better agreement for responsibilities if you’re working with someone who is strictly a partner.
7. Having Equal Partnerships
Once you start your business with a partner, a 50/50 partnership might look like the best way forward to you. Instead, both of you might have the kind of synergy right now to build on this partnership and climb the ladder of success. But, regardless of how clear you are with your agreements and charter of partnership, conflicts are going to be part of a 50/50 partnership. The sooner you realize this, the better it will be for you.
Instead of forming a 50/50 partnership, try to have a partnership where one partner has 51 percent ownership. By 51 percent we mean one partner should have a higher percentage of ownership than the other. While disagreements are unavoidable at times, it helps to know that one partner has more ownership and they will always have a greater say in the proceedings. An equal percentage of ownership can lead to inflated conflicts between partners, as they try to battle it out for who gets to have the final say in case of a disagreement or conflict.
8. Not Knowing When to Go for Financial Assistance
Getting financial assistance for your business is the equivalent of going to a doctor to get a checkup. Let’s imagine you have a minor cough and you would preferably want it treated before it transitions into the flu that makes you want to stay at home and not work at all.
Similarly, the liquidity crunch is a major impediment that you should treat immediately. You should preferably get small business funding from a private funder online. Private funders online are a lot more relaxed when it comes to giving out the necessary funds for getting your business back on track.
You shouldn’t neglect the importance they play in ensuring that your business gets the fund required for solving the liquidity issues and also meeting some of the cash targets for the period. While banks happen to be strict with their qualification criteria, you can easily get the desired amount funded from a private funder online.
Most entrepreneurs make the mistake for delaying the need for external finance options and give themselves false hope that the business can keep performing as it is. Just like it is with us humans, the impediment will only get severe if you neglect the need for help when it first arises.
9. Ignoring Insurance
This is perhaps one of the most common mistakes we see entrepreneurs around us making. Entrepreneurs need to realize the importance of getting their insurance done on time. From inventories to fixed assets, everything should be insured properly.
Most organizations neglect the importance of insurance and are then left ruing the missed opportunity. Natural disasters and other causalities can strike at any time, which is why you should have all of your assets insured from the first day of business. We know that insurance might come across as an unnecessary expense to you right now, but it is needed for the well being of your business.
Your business should be provided the safety pad it needs for success. The needs of your business shouldn’t be overlooked, and you should guarantee that you are ready for the expense that goes towards insurance at the start.
10. Not Spending Enough Time on Selling
There are two facets to your organization: the development process and the selling process. While you should spend your due time developing the product, you should also make sure that you spend enough time on selling it. Do not make the mistake of spending too much time on developing the product and not enough on selling it.
This is something we have noticed with multiple small business entrepreneurs. Entrepreneurs believe that if they improve the development process, the product will market itself well without a problem. But, they fail to realize the importance of focusing on selling in the process as well. Selling the goods you develop should be as important as developing them.
When you first start developing the goods you should make sure that you have a selling strategy in mind for them as well. By selling strategy we mean that you should know how to market the product and how to place it in front of your potential masses.
The people you are selling to should know the benefits that your product provides. Regardless of how beneficial your product is for the market, you will never be able to increase sales if you aren’t focused on selling as well. Both developing and selling should get the same amount of your time. While the end product is important, marketing the attributes to the general public is equally as important.