As a new small business owner, you are likely eager to get your business off the ground and start making a profit. While there are many things you can do to increase your chances of success, there are also some common business mistakes that new business owners make. In this blog post, we will discuss some of the most common mistakes made by entrepreneurs, and how to avoid them.
Not Creating a Business Plan
One of the most common business mistakes made by small business owners is not creating a business plan. A business plan is essential for any business, as it helps you to map out your business goals and strategies, and ensures that you are headed in the right direction. Without a business plan, it can be difficult to make decisions about your business, or know when you are making progress.
A Harvard Business Review study found that business owners who write a formal plan were 16% more likely to see their venture turn viable than their non-planning counterparts. No matter how you frame it, a 16% advantage is definitely something you want considering more startups are unsuccessful on the first try.
Another one of the common business mistakes we see is setting prices too low. When pricing your products or services, it is important to remember that you need to make a profit in order to stay in business.
If you set your prices too low, you may end up losing money on each sale. Plus, it devalues your brand. Instead, try pricing your products and services at a level that allows you to make a profit, while still being competitive in your market.
There are several types of pricing strategies, but our favorites are:
- Competitive pricing: you research your competitors to find similar products and charge what they charge
- Cost-plus pricing: you simply calculate the total cost involved in selling the product and then add your preferred percentage for profit
- Value-based pricing: after familiarizing yourself with your customer, try to determine how much they feel your product is worth and then charge that
Next on our list of business mistakes is not controlling expenses. It is important to keep track of your expenses, and make sure that you are not spending more than you can afford. If you do not keep track of your expenses, it can be easy to overspend and end up in financial trouble.
There are a number of tools you can use to help you track your expenses, including:
- Old school spreadsheet: Excel, Google Sheets, or LibreCalc are just some options. Google Sheets is great because it’s cloud based and you can access your spreadsheets from anywhere, but it comes at the expense of privacy (it’s Google).
- A budget app: Mint, Honeydue, Personal Capital, Goodbudget, Wally, and PocketGuard are free options, some with paid features available
- Traditional budgeting software: Quicken, Moneydance, GnuCash, and Skrooge
- Accounting software: if you’re a solopreneur, you can keep track of your expenses directly in the transactions section of your favorite accounting software. We use Wave, but there are many other options out there.
- A financial planner: this sort of goes against the whole DIY, self-made spirit we try to encourage around here, but there is nothing wrong with delegating some of your expense management if it means you can take on more profitable tasks
By using one or more of these tools, you can keep track of your spending and make sure that you are not overspending. By avoiding these common business mistakes, you will give yourself a better chance of success as a small business owner.
Next on our list of frequently observed business mistakes is not becoming familiar with applicable laws and regulations. It is important to know what laws and regulations apply to your business, and to ensure that you are compliant with them. Ignorance of the law is no excuse, so it is best to educate yourself on the applicable laws and regulations before starting your business.
There are a number of resources available to help you become familiar with the laws and regulations that apply to your business, including:
- Your state’s government website: each state has a website where you can find information about starting and running a business in that state. The site will likely have a section on regulatory requirements, as well as other helpful information
- The Small Business Administration (SBA): the SBA is a government agency that provides information, resources, and support to small businesses. They have a section on their website dedicated to business law and regulations
- Local business organizations: most cities and towns have at least one organization made up of local business owners. These organizations can be a great resource for information about local regulations
- Lawyers and accountants: many lawyers and accountants offer free or discounted consultations to small business owners. Take advantage of this, as they can be a wealth of information
Fifth on our list of business mistakes is setting unrealistic goals or not setting any goals at all. Without goals, it can be difficult to measure your progress and know when you have achieved success. It is important to set realistic goals for your business, and to track your progress towards them.
There are a number of methods you can use to set and track your business goals, including:
- SMART goals: SMART stands for Specific, Measurable, Achievable, Relevant, and Time-bound. Using this framework is a great way to make sure that your goals are realistic and achievable.
- Objectives and Key Results (OKRs): OKRs are a goal-setting framework that is popular in the business world. They are similar to SMART goals, but are more detailed and include specific metrics for measuring progress.
- Business planning software: many business planning software packages include templates for setting and tracking goals. This can be a great way to keep all of your important information in one place.
- Financial planning: if you are not sure where to start when it comes to goal setting, a financial planner can be a great resource. They will help you set financial goals and track your progress towards them.
Doing it All
Another common mistake made by business owners is not delegating. When starting a business, it is important to hand out tasks to other people in order to lighten the load.
If you try to do everything yourself, you will quickly become overwhelmed and stressed out. Delegating tasks also allows others to learn about your business and contribute their own ideas.
There are a number of ways to delegate tasks, including:
- Hiring employees: this is probably the most common way to delegate tasks. Employees can be assigned specific tasks and responsibilities, and can be responsible for completing them.
- Outsourcing: outsourcing is the process of hiring a third party to complete a task or project for you. This can be a great way to get tasks done quickly and efficiently.
- Task delegation software: there are a number of software programs that allow you to easily delegate tasks to other people. This can be a great way to keep track of who is doing what, and to make sure that tasks are completed on time.
- Partnering with other businesses: partnering with other businesses can be a great way to delegate tasks. This can be as simple as exchanging services or products, or it can be a more formal arrangement.
Another one of our business mistakes is not properly defining their target customer. It is important to know who your target customer is, and to market your products and services to them.
If you try to sell to everyone, you will not be successful. Instead, focus on attracting customers who are likely to buy from you.
There are a number of ways to define your target customer, including:
- Demographics: demographics include factors such as age, gender, income, and education level. Knowing your target demographic is a great way to ensure that your products and services are appealing to them.
- Psychographics: psychographics include factors such as lifestyle, values, and interests. Knowing your target psychographic is a great way to understand what appeals to them.
- Behavioral data: behavioral data includes information about how customers interact with your business. This can include things such as their purchase history, website behavior, and contact preferences.
Mixing Business & Pleasure
Another mistake made by business owners is mingling business and personal expenses. When starting a business, it is important to keep business and personal expenses separate. This helps you to stay organized and avoid any confusion about which expenses are related to your business.
Most importantly, keeping a distinct separation between personal and business finances will help you avoid liability if you chose a protected business entity. Believe it or not, creditors could still be able to access your personal assets for your LLC’s business debts if you can’t show that you’ve kept finances separate.
Get a tax ID number and a separate business bank account for each company you operate. If you plan on using credit cards, get them for each business if possible.
If you ever borrow money from your business, make sure to keep detailed records and receipts of everything. If the IRS ever bothers you, at least you will have proof that every related transaction was isolated and executed properly. This is one of the most common business mistakes.
Not Getting it in Writing
Another common mistake made by small business owners is not getting everything in writing. It is important to document all of your business transactions, including agreements with suppliers, employees, and customers.
This helps to protect you in the event that there is a dispute about the transaction. It helps to have an attorney review contracts wherever possible to make sure any potential problems are spotted before they arise.
This recommendation goes beyond basic supplier contracts, though. If you ever employ others, you will also want to develop non-compete clauses for employees and non-disclosure agreements for vendors and contractors. This will help protect your competitive advantages, intellectual property, and trade secrets.
Another mistake made by business owners is not celebrating successes. When you achieve a milestone in your business, it is important to celebrate it! This helps to keep you motivated and focused on your goals.
It also boosts morale. Achieving something you have been anticipating increases the body to release dopamine, which is a “feel good” chemical. Celebrating is physiologically uplifting.
Celebrating successes is also a great way to show your employees that you are doing well and that they are working for a successful company. When you recognize employees for their achievements, they are more likely to achieve for you in the future.
Finally, another common mistake made by small business owners is not spending enough money to fuel profit and growth. In order for a business to grow, it needs capital investment.
If you do not invest enough money into your business, it will be difficult to make progress. Without the right equipment and tools, you will perform inefficiently and will lose money in lose productivity.
You will also lose customers who see you are not the best option for the job. It may seem like a lot to cough up the finances for major expenditures in the beginning, but realize that these are the resources that will secure your income moving forward.
Not only does this rule apply to beginning capital, but it is equally as applicable to ongoing operations. You must be prepared to reinvest most of the profits back into the business for at least the first couple of years.
This is an absolute requirement to ensure future business. Reinvest in better software, better tools, better machines, or more advertising. As a general rule, reinvest whenever you will at least break even on your investment, all thins considered.
There will be plenty of time for profit taking, but you want to build a solid base first. You may have seen exceptions to this rule, but those are usually seen in inherited businesses or when there are angel investors who don’t really care about getting their investment back.
Not Learning From Your Business Mistakes
Las,t but not least, on our list of business mistakes is not learning from your mistakes. Look at every misstep as an opportunity to improve for the future.
You can’t turn back the clock, but you can take necessary steps to make sure an event doesn’t occur again. Remember, nothing that’s easy is worth having.
You’re going to make business mistakes a lot. You’ll probably also be running at less than optimal efficiency most of the time, especially if you’re running your own show. That said, this is only a problem it doesn’t help you find and fix weak spots.
Here you have learned about some common things that new business owners should not do. Chances are you’re going to be guilty of violating this list of business mistakes at several times in your business life, but it’s what you do afterward that counts. Mistakes only become a waste if you don’t use them as opportunities to improve.