6 Common Mistakes to Avoid When Starting a New Small Business
While hundreds of small businesses are started each day across the country, the competition in every industry is fierce. As reported by the Chamber of Commerce, over 20% of new small businesses in the United States close down within the first year. While the failure of a business can be attributed to various causes, new entrepreneurs can increase their chance of success by avoiding making some simple mistakes while setting up their business. Wondering what these mistakes are? Read on, as this article by Deerfield Employment Solutions will provide answers to all your questions.
Lack of Planning
Working without a plan is as good as shooting in the dark. With no objectives or goals in sight, your business will be aimless, eventually leading to failure. Additionally, no investor or lender will be willing to provide funding without scrutinizing your business plan. Your first responsibility as an entrepreneur is to invest time towards creating a well-thought-out plan which includes your goals, funding requirements, utilization of funds, and information regarding your product/service.
Bad Financial Planning
You need to have a financial plan in place which lays out the timeline in which your business can become self-sufficient. While debt can be a useful tool to cover short-term operational expenses, over time your business will be burdened by large repayment amounts and interest.
To overcome financial difficulties from the get-go, opt to bootstrap for the first few months and have a concrete plan covering how you will utilize future funding from lenders or investors.
Distributing Excess Equity
In exchange for their funding, investors will ask for a part of the equity in your company. How much equity they’ll receive will be based on the amount invested, valuation of your company, and perceived future growth. As the owner it is important to not sell off the majority of your company in the early stages of your business, this will make you a minority owner and you may lose power over making decisions about your own company.
Not Selecting a Niche
At the end of the day, all businesses are dependent on strong customer relationships for their success. But, given the plethora of options available in the market, customers can be quick to change who they spend their money on. As a business owner, providing the best service to your customers needs to be a priority.
As a new business with limited resources, you’ll find the most success channeling your efforts towards a select group of customers who have the highest demand for your product. Finding this group will require hours of research regarding market trends, competitor analysis, conducting customer surveys, and collecting constant feedback from customers.
Not Focusing on Digital Marketing
According to Smart Insights, 74% of the population of the USA is active on social media and uses it for an average of 2 hours each day. By not creating a strong online presence, businesses lose out on connecting with millions of customers daily. To gain a competitive edge, implement the following marketing activities:
Create brand accounts on all social media channels your customers use.
Regularly post offers, product benefits, reviews, and engaging content through all handles.
Use marketplace features on Facebook and Instagram to sell your product directly from the platforms.
Choosing the Wrong Business Entity
Entrepreneurs often start a business as a sole proprietorship due to its ease of formation. However, this can prove to be a costly mistake. In case of litigation, the owner will be held liable for the dues of their company and can lose their private assets and savings.
A good choice is to register your business as a Limited Liability Company (LLC), which establishes the business as a separate legal entity. As rules for LLC vary between states, opt to work with a formation service for registering your business in Indiana. In the long run, an LLC will help you save on taxes and use various business expenses and write-offs.
As an entrepreneur, you are bound to face challenges while running a business. Avoiding the above-mentioned mistakes will give you an edge over your competition and keep your business healthy for the foreseeable future.