Setting up your first small business is likely to evoke a combination of exhilaration and excitement, as well as the sheer terror of knowing how many things could go wrong. There are some common mistakes that first-time small business owners make that you could avoid.
You can bunch these into three broad categories: not doing enough planning upfront, not staying close enough to your finances, and not actively looking for new customers.
Not Doing Enough Planning Upfront
Benjamin Franklin’s well-known quote, “If you fail to plan, you are planning to fail,” is extremely apt when it comes to setting up a small business for the first time. Entrepreneurs who have an exciting business idea often launch into the venture without having planned sufficiently well to set themselves up for success.
To run a sustainable business, the owners need to draw up specific business, financial, and marketing plans that will guide the company through the first year of operation at least. It is only in understanding what you want to sell, whom you want to sell it to and how you are going to make a profit off the sales that you have any hope of achieving your business vision.
It is also advisable to set up your SMART goals, namely Specific, Measurable, Achievable, Realistic, and Timely goals that will keep you on track and much more likely to achieve the business goals you set for yourself.
As a result of insufficient planning, small business owners can find themselves underpricing their products and services because they haven’t done sufficient market research and overspending because they are overly optimistic about how quickly the business will grow. These two errors of judgment could be enough to sink the company before it even has a chance of getting off the ground properly.
Not Staying Close Enough to Your Finances
Another fundamental mistake many new business owners make is not monitoring the financial state of the company regularly enough and checking this against the financial plan established at the outset.
If you are not on top of the finances, the business could all too quickly run into the number one challenge that sinks most new businesses: insufficient cash. The owner needs to understand the difference between cash flows and sales and prepare for the fact that purchases not paid in advance can easily result in a cash flow crunch because you have already paid for the materials. Then if customers also pay their invoices late, the crunch could well escalate into a full-blown cash flow crisis.
By staying on top of the finances, it is possible to see this coming and set up financing options, including access to loan finance, invoice finance, or other debt facilities that can tide the business over until cash flows have become positive again.
Not Looking Hard Enough for New Customers
As a small business owner, ignore marketing at your peril. Many small businesses have found that without a targeted and well thought through marketing strategy, a company is unlikely to succeed. After all, customers are not going to appear without hearing about what you have to offer.
Small business owners make the mistake of seeing marketing as an unnecessary cost centre. Some also find it intimidating putting a market strategy together, given the many marketing options available in today’s digital era.
However, It is essential to approach marketing in a considered and cautious way until you know the return on investment you achieve from various marketing channels. You can do this by trying multiple options to establish what is proving to be most effective at attracting new customers to your business.
Once you have the customers, you also need to make sure you serve them well enough and, depending on how quickly your customer base, this may require you to hire additional client servicing individuals if the burden becomes too onerous for you and your other staff members. The first year or so of setting up a small business is the most precarious period, during which it is critical to avoid the common mistakes others have made before you. In essence, you will need to achieve a balance of gearing up sufficiently for potential business growth, while not doing this too quickly if you want to avoid running into the cash flow issues that plague so many new businesses.
Sharon Wood is an experienced writer, editor, communications manager and strategist, as well as former financial journalist, who became a communications consultant and freelance writer this year after working as a communications manager in the asset management industry for more than a decade.