It is common knowledge in the business world that approximately 50 percent of new businesses don’t make it past the first year. Starting a new business requires a lot of dedication, hard work, as well as a thorough understanding of what needs to be considered before launching to the public. From hiring a high-quality workforce to ensuring that you have a sufficient marketing strategy in place, that can be aided by companies like Polkadot Communications, there is a lot to think about. However, one bad business decision could land your business belly-up, so it’s important to do your research while your business is still in the planning stages. Poor financial management and lack of sufficient capital are at the top of the list of reasons new business fail. By educating yourself about the top mistakes new business owners make, you can find ways to avoid making those same mistakes yourself.
1. Starting Out With a Large Amount of Debt
Many new business owners will turn to high-interest credit cards and bank loans for their start-up capital. Making payments on credit cards and loans on top of all the other expenses that come with starting a business can get you into trouble fast! It’s much better to wait until you have your start-up capital saved so that you don’t have to borrow large amounts of money. You should also consider applying for grants as an alternative to taking out a high-interest loan.
2. Poor Accounting and Record Keeping
Small business must practice good accounting and record keeping right from day one. Invoices, bills, payroll and other financial documents need to be kept properly organized and recorded to help keep track of profits, loss, and expenses. The better your records are, the easier it will be at tax time, too. Many business owners are not skilled accountants, so new business owners would be wise to hire a company that offers complete bookkeeping services. They will help you set up a record keeping system that will save you a lot of headaches in the long run.
3. Hiring Employees You Don’t Need
The costs of payroll, employment taxes, worker’s compensation insurance, and income taxes can all add up very quickly. New business owners should be careful to only hire the number of employees they actually need. Even one or two unnecessary employees could mean the difference between success and failure. Consider hiring freelancers and part-time staff over full-time employees wherever possible to keep expenses down. That being said, the employees that you do have will need your support, so focusing on their People development, among other essential needs is imperative.
4. Investing Money in the Wrong Things
New business owners often get caught up in the excitement of running their new business, especially when the money starts coming in. They want the best of everything, from office equipment to flashy websites. Don’t be tempted to buy unnecessary items for your business, or hire extra employees, when you’re just getting started. Instead, set up your office on a budget and only purchase what’s truly necessary to your business. The first year of business is the time to save money, not spend it. Having cash on hand to cover surprise expenses could mean the difference between success and failure.
Don’t purchase any big ticket personal items the first year either. There will be times when you can’t afford to pay yourself. You don’t want to lose your home or car if your business isn’t making the profits you expected. Every penny you spend affects your bottom line, and now is the time to keep all expenses to the bare minimum.
5. Not Having a Business Plan
Having a detailed business plan is essential to a new business. A business plan will help you plan out how much initial capital you will need and how many employees you should hire. A well thought out business plan will provide you with insights into your target customers as well as your competition. Cash flow analysis is also important for surviving that difficult first year. Your business plan should include a strict budget that you must stick to in order to succeed. You may need to adjust your budget as your business grows, but it’s important to have one to follow right from the beginning.
6. Not Having a Plan in Place to Protect Your Personal Assets
Business owners must always keep their personal finances and business finances separate. Having separate bank accounts and credit cards for your business and personal finances is a must from day one. Not only will this make it easier at tax time, it will help to protect your personal credit rating if your business takes an unfortunate nosedive. Taking precautions such as purchasing liability insurance or establishing an LLC (Limited Liability Company) is also essential.
7. Doing It All Yourself
Starting a new business is stressful at best. It requires a lot of time, dedication, and responsibility. One person trying to go it alone will quickly find themselves overwhelmed and discouraged. Having a business partner to share the work with will make a tremendous difference, decreasing the amount of stress while improving productivity. Hiring a company with expertise to help you get started can also be valuable. Check out Your Company Formations www.yourcompanyformations.co.uk to find out how they can guide you through the process.
8. Not Being Flexible
Something that seemed like a great idea during the planning stages of your business may not turn out to be such a great idea in practice. If a product or service is not selling or is not making enough profit, new business owners must be flexible and willing to try something different.
9. Not Having a Cash Safety Net
Business owners should require themselves to keep a minimum of 2-3 months operating costs on hand at all times. This should give you enough reserves to get through any slow times while your business is getting off the ground. It’s a good idea to keep 2-3 months’ worth of personal expenses on hand as well. Business will ebb and flow, and you need to be prepared to weather the dry spells.
10. Not Having a Website and Social Media Presence
Nowadays, everyone turns to the internet for information. New business owners should have a website that includes at least your contact information, location, and a solid description of your products or services. You should also have social media profiles for your business to make it easy for people to find you and share their experiences with your business with others. Social media can be a very effective way to get free word-of-mouth advertising.
No new business owner wants to think about their business failing. By avoiding these 10 business mistakes, you will help to ensure that your business is one of the 50 percent that survives past the first year. You will also establish good habits that you can continue to build on for years to come.
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