You’ve always dreamed of owning your own business and now the right opportunity has come along and you’re ready to take the plunge! You may be a bit weary if you've heard that more than half of new businesses fail within the first year. Statistics from the Small Business Administration (SBA) are a bit more optimistic, citing that 30% of new business fail within the first two years, 50% in the first five years, and 66% within 10 years.
But, you've got a plan and a great product or service. You've done your homework. Now, you're ready to take the big step! So how do you keep from becoming one of those negative statistics? The simplest tip is to learn from others' mistakes.
While no two business start-ups are the same, most face the same challenges and pitfalls. Some of the more common problems that force a business to prematurely close its doors include:
- Taking on too much debt too soon.
- Mismanagement of funds, assets and workers.
- Failure to plan for the unexpected.
- Insufficient cash flow.
- Failure to protect intellectual property.
- Misunderstanding of competition, market demand and marketing needs.
- Unwillingness to ask for help from experts (trying to do it all solo).
So, what should you do to avoid these common mistakes and help keep your business profitable?
- Limit big-ticket purchases. Invest only in those must-have items that you’ll need to generate revenue in the short-term and avoid taking on too much debt with high interest payments.
- Keep separate savings, checking and credit card accounts for your business, even when it’s small. This separation of business finances from personal finances will not only facilitate accounting for the business but will also provide you with a more accurate picture of your business’ financial condition. Doing so also can also help to avoid possible IRS penalties, protects your personal credit score if the business goes under, and facilitates reinvestment in growing the company.
- Staff appropriately. Don’t try to do everything on your own to cut corners. If necessary, hire freelancers or part-time workers to save on payroll and benefits costs. But always remember to be a boss and not a buddy.
- Manage cash flow. Many unseasoned business owners get caught up in selling products and making money without paying attention to the timing of payments and expenses. Make sure revenue is coming in on a timely basis to meet such must-pay expenses as payroll, taxes and critical suppliers.
- Protect your intellectual property early on. You definitely don’t want to go cheap on this one. Make sure you’ve taken the necessary steps to patent, copyright or trademark your most valuable assets not only here in the US but also abroad if your product or service has global potential.
- Don’t underestimate the competition or overestimate market demand. Doing your homework is key. Everyone likes to think their product is unique or superior, but is that mere perception or reality? Make sure you have a strong marketing plan for communicating your product or service benefits and then pricing them appropriately.
- Plan properly. Create a budget and stick with it. Know who your customers are and the best way to reach them.
- Don’t overlook the little things. Most businesses don’t go under because of one big mistake. Rather, business failure is often the result of a series of oversights or missteps.
- Save for the unexpected. Even the most successful businesses are subject to seasonal adjustments or market downturns. Make sure you’re building a financial cushion, which includes having enough in your personal accounts in case a lack of sales means you can’t pay yourself a salary for a while.
- Don’t forget about Uncle Sam. Few things shut down a business faster than a tax lien. When you’re creating your budget, don’t forget to allow for your estimated quarterly payments to the IRS.
Most importantly, be patient and prudent. Be careful that you don’t expand too quickly and take on excessive debt in the process. Slow steady growth beats quick growth spurts every time. And, don’t be afraid to ask for professional help at every step of the way from planning the business to launching it to growing and sustaining it.
Looking for more resources? Check out our interactive Small Business Banking Service course.
The information and recommendations contained herein is compiled from sources deemed reliable but is not represented to be accurate or complete. In providing this information, neither Cortland Bank or its affiliates are acting as your agent or is offering you any tax, accounting or legal advice.