Written by: Tanyi Melvis Bechamnyo
Being a small business owner has become very challenging. In fact, research by Harvard suggests that three out of every four venture-backed startup firms fail to survive five or more years.
While the challenges facing small business owners are numerous, addressing some of the most common biggest mistakes may help improve a business owner’s probability of success.
Running a small business can be both rewarding and challenging. Knowing your numbers, investing in the right people, properly capitalizing your business, planning for tax liabilities and planning for the future may help you to leverage your business to positively impact your personal financial goals.
Since everyone’s situation is unique, consider speaking to your legal, tax and financial advisers to determine the most appropriate approach for you.
Not Knowing Your Numbers
Many small business owners don’t know their numbers. Shark Tank’s Kevin O’Leary (better known as Mr. Wonderful) has chewed out many entrepreneurs for not knowing their numbers.
And for a good reason – “knowing your numbers” is one of the most important aspects of successfully running a business. From the cost of goods sold and profit margins to variable costs and break-even points, many business owners do not have a good handle on the economics of their business.
Why are the numbers so critical? Because when used effectively, they are the point of clarity and the basis for virtually every decision a business owner makes.
The challenge is knowing which numbers are the most critical to your business. While there are common profitability metrics every business should know, there may be more specialized numbers that are more crucial to certain types of businesses.
Consider working with your CPA or a business coach to explore which ratios and numbers you should focus on.
As O’Leary notes, ” If they don’t know the numbers, they don’t know their business.” Knowing your business and your numbers will only improve decision making and future outcomes.
Failing To Invest In The Right People
Investing in the right people is no easy task. (Notice I said investing.) One of the biggest mistakes business owners make is looking at their team as simply a cost.
Viewing employees as an expense often leads entrepreneurs to “hire behind the curve” or later than they should. While it is important not to hire too early either, finding the optimal balance is critical.
Culture is also crucial and building the right team can be the difference between success and failure. Investing in the right people also means helping them to develop and improve their skills so they become an even greater asset.
As Sir Richard Branson said, “Train people well enough so they can leave, treat them well enough so they don’t want to.”
Under Capitalising The Business
We have all heard the expression, it takes money to make money and when it comes to running a small business – this is often true. Too often, small businesses underestimate the amount of working capital they should have on hand for operations and expansion.
Having sufficient business reserves or access to lines of credit can be critical during both periods of expansion and contraction – especially in the case of economic weakness.
While the economy may be strong today, it is critical to have sufficient capital to handle the financial curve balls that might be thrown your way. Consider planning for worst-case scenarios when considering capital requirements and always have a plan B.
Forgetting To Stay Ahead Of Tax Liabilities
As businesses grow over time, many owners fail to keep a close eye on new tax responsibilities. From payroll taxes and sales tax to state and federal income tax payments, many businesses are so busy with the day to day management that they fail to properly plan in this area.
Tax liability can spike during periods of rapid growth, often leading to giant tax surprises in the future. Outsourcing works well here and proper planning with a qualified CPA and bookkeeper can help ensure you have a good handle on the various tax liabilities that a business owner may be responsible for, ultimately limiting future surprises.
Mistake Of The Period Of Time To Make Profit
It is really difficult to talk about making a profit. Because most first time entrepreneurs don’t have any experience, they will make the mistake of calculating the period of time to make a profit.
Most of them think a first-time startup will bring the profit back in 1 year. However, there are two possible cases. The first is you make the profit in one year, and decrease in the next year.
The second is you miscalculate completely the period of time. It may take you 2 years instead of one and you just abandoned it. Well, practically a startup will need about 3 years to make a profit.
Lack Of Patience
Giving up. You should not give up easily. There is a way to overcome every obstacle. You just need to work smarter. Work 10x for next 365 days and it will change everything. The most important one to focus on as well is not giving up in your early stage of the startup.
Lack Of Team
People think they can do it all. No. A successful business was never built by a single person.
You need a team!
Finding the right team is very important. They should be best at what they do. Everyone should bring a certain value to the business and should be willing to work their ass off.
Lack Of Proper Research
Market research can provide some very important information like the demand of the product, pricing, is market mature enough to welcome your product etc
More than 80% of the start-ups don’t perform the proper market research and way more than that closes down every year.
Not doing enough research to see if the location of the business, as well as if the business itself is viable. eg target, what problem are your services solving etc is harmful.
Lack of training and preparation, insufficient funds to maintain the business until sales are made, no knowledge of your market and potential customers, poor business location, policies that make it difficult for customers to buy from you, inability to accept credit cards, offering products that aren’t in demand….the list is almost endless.
Copying Other Succesful Businesses
Copying other successful businesses. The product you’re going to sell or the service you’re willing to offer should be different than those in the market. But the problem is that many who copy successful businesses don’t try to be different.
If there’s not much different then you’ll have to compete with the greatest in the industry and for that, you will have to burn the cash and with higher uncertainty factor.
Poor Cash-Flow And Accounts Receivables Management.
Most people who start a business aren’t from a financial background (and that’s OK).
A business owner has so many things to take care of (sales, vendors, etc.) that many times making sure that you have sufficient fund in the account or sweep your accounts receivables for any unpaid balances isn’t a priority until your bank calls you or payments bounce.
These days there are plenty of solutions to tackle these challenges. If the goal is to avoid going out of business, a founder must establish good infrastructure, incorporating such automated services with their ERP or accounting software, increasing business productivity, saving time and costs along the way while focusing on more strategic tasks such as business development and client acquisition.
Patience is required while building a venture, as most startups start with limited resources, it takes time for the founders to wear every hat. It takes time for selling your service/ product to your first customer.
It takes time for the market to know about your offerings, it takes even greater time for the market to trust your venture in buying your offering. Finally, learn to prioritize your day for maximum results. Only then comes the scope of scaling.
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