Avoid these common mistakes made by business start-ups
Although most small businesses fail in the first year of operation, business survival rates tend to improve as a company ages. According to the Small Business Administration, about two-thirds of businesses with employees survive at least two years. About half make it through the first five years. You can increase your odds of weathering those initial start-up years by avoiding a few all-too-common mistakes.
- Inadequate planning. Many factors go into your business strategy: the company's structure, market demographics, capital requirements, and expected cash flow. When it comes to a start-up, it's all about attention to details. Develop a realistic budget forecast. Research the marketplace, and know what sets your product apart. Family expectations can also be important. Hold frank discussions with family members to avert misunderstandings when business requirements claim more of your time and energy.
- Insufficient cash. Don't rely on credit cards or bankers to bail you out if cash flows don't meet expectations. Before opening your doors to the public, establish a cash reserve that's three times your first year's estimated need. All sorts of unforeseen expenses can cripple your business while you build your customer base. A healthy cash reserve can make the difference between a viable business and a failure statistic.
- Inflexible management. Adapt your business model to varying conditions. If customers, competitors, or markets change, be willing to change with them. Last year's tactics shouldn't be sacrosanct. Experiment and consider new ideas. Evaluate how your product or service is currently addressing market demands. Modify or discard your original idea if it's clearly failing. As your company grows, don't be afraid to hire employees who are willing to challenge your long-established strategies.
- Incompetent advice. Don't assume you can download free online guidance that will address specific legal or accounting issues — it's worth paying for expertise. Hire a lawyer trained in small business matters. Set up accounting systems with the aid of an accounting expert. If you ever decide to sell your business or are faced with a lawsuit, you'll be glad you paid for professional legal advice. If you want a clear understanding of your business expenses and tax issues from year to year, don't scrimp on accounting expertise. And remember to schedule regular consultations with your experts to ensure the company stays on track.
Starting a business is never easy. Learning from the mistakes of other start-ups may help your business grow successfully through the most challenging early years.