Starting A New Business? Avoid These Common Mistakes

Starting a new business for the first time is not always easy. There are many factors to take into consideration – whether financing, marketing, customer acquisition or dealing with legal issues. Many new businesses place legal concerns on the back burner due to costs and time constraints. They assume that legal problems can be dealt with later, but it may be too late or even more costly to fix.

In this article, we put together a list of common mistakes start-up businesses make.

7 Common Small Business Startup Mistakes

All businesses make mistakes. It’s OK. Whether you’re running your first or fifth business, prevention is key. Here are the common mistakes small business owners make, and how you can avoid them:

1. Inadequate Startup Capital and Resources

Not having enough startup capital can be a fatal mistake for new businesses. It’s common for entrepreneurs to neglect financial planning and lowball how much capital they’ll need to get their business up and running. The result is often inadequate financing to achieve your goals and/or a cash squeeze just as the business is hitting its stride.

To avoid such problems, be sure to prepare financial projections for your new business, especially for the first 12 months. This can also help you secure financing and investments. Make sure you carefully research your initial start-up costs and operational costs. Be sure to include a contingency amount in your projections as there may be costs that you haven’t thought of or come up with unexpectantly.

2. Structuring Incorrectly
Structuring your business incorrectly is another mistake that can take a lot of work to fix. Before registering your business, you’ll need to have an understanding of the different business structures. This knowledge will help you determine what’s right for your business. But choosing the wrong business entity—or not setting one up at all—can have serious consequences down the road. For example, if you operate as a general partnership, you may be surprised to find that you are personally responsible for all the business’s debts—even the ones you never agreed to.

Do your research and get some start-up advice from legal or financial professionals, if necessary, to make sure you’re structuring your business in a way that will save you money and help you avoid liability.

3. Setting Unrealistic Goals
Even if entrepreneurs do not expect to be an overnight success, they can still set unrealistic financial goals. Hoping to earn an unreasonably high return on a new business venture within a year or two is a good way to set the company up for failure unintentionally. In most cases, it will take years for a new business to develop enough productivity to turn a profit.

Not only can unrealistic goals cause the business to suffer. They can also cause an emotional drain on the business owner. It is better to take a more modest approach by setting specific, measurable goals that the company could attain through hard work and the proper processes.

4. Try to Do Everything Yourself
Trying to run the business alone is a big mistake that many people make. They may do everything from fulfilling orders to payroll to hiring and onboarding new employees. Though it is good to know your small business inside out, doing too much will eventually cause more harm than good to the company.

Contrary to the image of the lone entrepreneur, successful entrepreneurs build a network of people that can help them with their business. Take the time to build your support network with people that can mentor you (such as a retired businessperson) as well as professionals such as marketing company, accountant and lawyer. The fewer areas you try to cover alone, the more time and energy you’ll have to focus on sales, customer engagement, and account retention.

5. Failing to Invest in Technology
Technology plays a significant role in an enterprises’ ability to meet consumers’ needs while staying ahead of the competition. Canadian businesses lag their U.S. counterparts in technology investments and that affects our productivity. For example, e-commerce tools make it easy to feature new products online for customers to buy from home at their convenience. The system can include software to keep track of sales and electronically handle invoicing and payment processes. Be sure to consider how technology could pay off for your business with improved growth, efficiency and profitability.

6. Ignoring the Competition
Business owners should never assume they have no competition. It does not matter how good they think their products and services or business models are because competition is a natural aspect of running a small business.

Competitors do not have to offer the same goods or business approaches to be a threat. They may provide convenience or alternatives to your services that consumers find attractive. If business owners ignore industry trends, their businesses can quickly fall behind.

7. Failing to Prioritize Spending
Do you know what positive cash flow is, why it’s vital to new ventures, and what the risks are in taking on too much debt? Finances may not be your forte. But if you don’t prioritize money matters, there’s a greater chance your business will fail.

According to research from QuickBooks, not only have 64% of Canadian small businesses experienced cash flow issues, 33% of those organizations have been unable to meet payment obligations.

 

The Bottom Line

If starting a business is in your future, understand that starting a business is a process, not an event. If you take the time to do the thinking and the research and avoid the business mistakes discussed above, you’ll hugely increase the likelihood of your new business succeeding.

If you are starting a new business or need help managing or understanding your books, working with a professional accountant can be the best way to avoid these common business mistakes. Contact us today to request a free no-obligation consultation.

Disclaimer

This information does not replace the advice of a tax professional.

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