In your early years of business, no matter how careful or knowledgeable you are, mistakes happen. If you heed voices of experience, you can dodge many common mistakes. Here are six mistakes that new business owners make frequently – and some advice about how to avoid these problems.
Mistake #1: Passion without a plan.
We often hear that entrepreneurs need passion to succeed. While that may be true, to grow your business and success in the long run, you need more than energy and a fire in your gut. You need a plan. Take the time to thoroughly investigate your market and target customer, the competition, and other basics. Focus on answering simple questions: How will I make money? How will I grow the business?
Mistake #2: Selling too cheaply.
New business owners often emphasize quantity over quality and figure rock bottom prices will fuel sales. More often than not, it doesn’t work that way. Even if sales boom, the business often does not result in enough profit to make ends meet or grow. Before pricing products, calculate fixed and variable costs. Research markets and competitive price points. Develop your unique selling proposition, i.e. the qualities that differentiate you or your products from competitors. Determine the margin you need in order to walk away with dollars in your pocket.
Mistake #3: Generic marketing and advertising.
You must develop effective strategies to market your business. But is your marketing plan working, or is it just a waste of resources? Many business owners, in an attempt to manage costs, develop their own marketing campaigns only to fail to boost sales. Their campaigns become ineffective and commonly suffer from an irrelevant message or improper niche marketing. To achieve your marketing and advertising goals, you must have an effective message, market position, and adequate funding. An advertising message that is believable and relevant is vital to success.
Mistake #4: Blowing through your capital.
New business owners grossly underestimate their financial needs. Typically, inexperienced owners overspend at the outset, buying more furniture, technology, and supplies than they really need.
New owners also don’t realize that few customers pay promptly. After developing personal and business budgets that can sustain the company for the time it will take to break even, add at least 50% to manage your risk. To speed collections and boost cash flow, consider offering a discount for prompt payment.
Next, review how you performed against your business plan. Did you spend beyond your budget? Your problem may lie in misguided or unrealistic expectations of revenues. Explore other financing
options. Be open to accepting equity financing.
Mistake #5: Poor management.
Poor management ranks high among the reasons many small business fail. It may cover anything from the inability to manage people, security, financial aspects, marketing, or customer-relation aspects of a business.
One of the most neglected and poorly managed aspects of small business operation is security-and-loss prevention, particularly for businesses with employees. According to U.S. Department of Commerce statistics, employee dishonesty alone causes 30 percent of all business failures. Consider implementing measures to protect your business assets, such as inventory, equipment, supplies, cash, and yes, your people. Physical protection of employees and customers is crucial and often overlooked.
Poor credit management is another common source of the downfall of many businesses. The failure to handle credit well is often the precursor of many cash-flow problems. You can review your customer-invoicing policies, possibly shifting to a strategy where each invoice carries a “pay by” date, as well as the predetermined payment terms instead of invoicing in a set pattern.
Mistake #6: Lack of know-how.
Many small businesses perish because the entrepreneur simply lacks the know-how in a particular aspect of business. This is particularly true for sole proprietors who wear many hats. You may be good at marketing, for example, but you may need help in setting up your accounting system or distributing products. You may have an idea where to find additional financing but lack the skills to network and find sources of capital. You can complement your skills with expertise of a board of advisors, a mentor, or a business advisor. You may not need to form a board of advisors, but your business will benefit from the advice of even two or three experienced people who can give an honest assessment of your work or where the business is heading.
Johnson & Wales University offers an online Bachelor of Science in Business Administration – Entrepreneurship degree. For more information, complete the “Request Info” form on this page or call 855-JWU-1881.