Unfortunately, very few start-ups make it past their 3rd year. Failure is usually due to a number of clearly identifiable mistakes that, if small business owners are aware of, can increase their chances of survival.
Here are the top 10 common mistakes that small businesses tend to make.
Lack of market research
When a budding entrepreneur has an idea for a new business, they assume that because they would buy such a product or service, everyone else will. This may be the case for daily necessities, but for other items this is usually not the case.
It is important that when you start, you research the market thoroughly to verify that:
- There is demand at a level that would lead to a sustainable business
- People are willing to pay the price required for you to make a decent profit
Undertaking market research may seem time-consuming, but the effort will pay off.
Poor record keeping
Some business people are not born administrators; they feel more comfortable going out and “doing business”. Paperwork is too easy to ignore but can never be put off forever.
Sales, purchases, and other expenses should be carefully documented, so you know whether you’re making a profit or not. Invoices must be issued on time and promptly followed up on late payment. It’s great to have sales, but poor record keeping can hold you back.
Having your papers in order will also save you time when it comes to having your year-end books done by your accountant!
Initially, it is easy to decide on the capital needed for plant and fittings, machinery and stock. What many new business owners overlook is the money needed to fund day-to-day needs, i.e. the money to pay for expenses before your customers pay you. This is called your working capital requirement.
Small businesses can fail because they don’t have enough cash to start meeting these immediate expenses. If you want to survive, be sure to set aside enough money to meet all your needs for the first few months.
Marketing ineffective or not at all
You can’t afford to treat the cost of marketing as an unnecessary expense. A business without marketing is like waving in the dark – you know you’re doing it, but no one else is!
There are many ways to promote your business on a small budget; it’s just about being inventive and creative. Whatever you do, don’t assume people will quickly know you’re in business – they won’t unless you tell them.
Ongoing changes in the market
As a small business owner, it’s very easy to become immersed in your business and not see what’s going on around you in the marketplace. Always keep your eyes and ears open to what the competition is doing and what your customers want. Don’t get left behind.
Attitude of the owner
Attitude is everything in business. Remember that the real boss of your business is the customer. Running a business can make you feel important, but don’t let that turn into an “I’m better than you” attitude. Do this and you’ll quickly drive away your customers.
Spending on the wrong things
Being in business can be exciting, especially as the money starts rolling in! However, don’t be tempted to spend it on a new car, house, or just a good time. If you are a successful business owner, you need to hold on to cash to fund future growth. A business cannot grow without cash, so commit to spending business money on the business.
Depends on a small number of customers
Don’t fall into the trap of starting a business just because someone says they’ll buy from you every week or every month. Creating and running a business that depends on a single customer is not a recipe for success. What if, a month after you’ve spent all your money building your business, that customer says they’ve changed their mind and decided to buy elsewhere? Unless you can find other customers very quickly, you face closure.
Before embarking on a new business, make sure you have a sufficient number of customers, so that if a few go elsewhere, you can continue to negotiate.
Growth too fast
Surprisingly, growing too fast can be a problem. You should be disciplined enough to only take on jobs that you can handle. If you are tempted to take on too much, you risk disappointing not only the new client, but also your existing clients.
Don’t underestimate the impact rapid growth can have on your administrative workload, either. As I mentioned earlier, falling behind on paperwork can have an equally detrimental effect on your business.
Try to do everything
Finally, the problem for most small business owners is that everything falls on their plate. Inevitably, that’s how it’s likely to be in the beginning, when limited budget means staffing is a luxury, but as the business grows, know that you can’t keep doing all the tasks. There will come a time when you will become inefficient and won’t have enough time to finish everything with enough detail. Taking on an extra pair of hands will increase your costs, but you’ll be surprised how much time you’ll save, allowing you to do what you do best: bring the business in.
Examine each of the errors and make sure you don’t fall into these traps.