I recently crowdsourced a question on Facebook, requesting topic ideas for a series of posts, appealing to small businesses. Robby Slaughter and Pamela Reilly, both of whom own small businesses, offered several topic ideas including this: Top 5 mistakes for a new business to avoid. The following is OUR top 5…
Not Testing Your Idea
What may look like a great business plan on paper doesn’t always work. Before investing wads of cash, time, and leaving your day job – test your idea. Beta test your marketing plan on a few prospects. Does the product or service appeal to them? Are they open to listening to someone or something new? Would they consider using your services? How does the price point compare to others? Does the prospect see a payback from the service? Is your product or service perceived as solving a problem? Why not spend a few hundred dollars and a few hours testing your idea before cashing in all of your chips? You may avoid costly mistakes in launching your new adventure, or you may question it’s feasibility entirely.
Taking on What You Don’t Know
I perform in a weekend band. Over the last few years, a dozen venues where we performed are gone. A few didn’t survive the economy, but the most common reason was inexperienced management. One restaurant had been in business for over sixty years – my parents ate there in the early 1950’s. A nice fellow whose experience in the restaurant business included shipping and logistics (in other words, no direct restaurant experience) bought it and attempted to manage it. It was closed within six months, and it continues to sit empty. If you want to open a business in which you have little or no knowledge – work in the trade or hire an experienced manager you trust and let them do their job.
Not Knowing Your Legal, Tax, and Insurance Responsibilities
Choosing the wrong legal entity, not understanding tax obligations, or being under-insured can ruin a business, and possibly, your personal finances. If you’re not an expert in these fields, I highly recommend you retain an accountant and an attorney who have small business and/or start-up experience. It could save you thousands of dollars or more. A couple years ago, a friend learned they owed the state of California over $100,000 in sales tax for their small business. What would a 100K hit do to you and your business?
Not Diversifying Your Services, Products and Customer Base
Don’t bet everything on one number. Having a loyal customer who wants what you offer is great, but don’t get caught with only one customer. In today’s business climate, things can change quickly. If you have all your eggs in one basket, what happens if it’s spilled? Take care of that customer, let them be your anchor, but find more. TKO Graphix was fortunate to start with several customers, but had we not added new customers, products, and services – we wouldn’t have likely survived.
Not Having Enough Cash Reserves
Cash flow and a line of credit, by itself, is not a viable backup plan. Your line of credit can change in a minute or disappear as many businesses learned in the troubled economy of 2008. Spending money before you have it is a dangerous game. Accounts receivable isn’t money in the bank, and every business owner can tell you stories of receipts they’ve never collected. Unless you’re a CPA, seek advice from an accountant.
The common thread of these five mistakes is preparation or lack thereof. If you want to escape these business killers, prepare yourself with knowledge, experience, finances, and expert help. Have you been involved in a start-up? What avoidable mistakes did you make?