Photo by Brooke Lark on Unsplash
This is a guest post written by Sam Marcum of Business Benefit Guide.
Starting a small business can be exhilarating, but it can be easy to make mistakes that put your new operation in peril. Here are six common mistakes that small business owners make that you can avoid.
Not having a business plan.
All businesses, regardless of size, need a business plan. In a nutshell, your business plan should detail what problem or gap in the market your product or service can solve and how. A thorough business plan will include:
Market analysis: your competition, who you plan to sell to, and how you will market your product
Financial analysis: how much it costs to operate, pricing your products and services, your estimated profits
Any funding requirements
Your target milestones and how you will measure them
Not choosing clients with care.
It may be tempting to work with anyone in the beginning, but tricky customers could be more than their money’s worth. Consider the following process when working with a new customer:
Conduct a customer credit check.
Set up a payment plan that ensures prompt payment.
Send invoices straight away.
Offer discounts for early payments and charge penalties for overdue bills.
Establish your payment terms at the start of your relationship.
Starting a business with friends.
Emotions and friendships shouldn’t enter the business environment. If mistakes are made in business, it may spell the end of your friendship, too. Consider how your relationship would suffer if a deal goes bad or you lose your friend's money? Are you sure your business goals are aligned? How will you resolve differences? Just because you are great friends doesn’t mean you are compatible in business.
Not managing your cash flow.
Cash flow is the movement of money into and out of a company. Your business needs money to run successfully; this means you need to maintain a positive cash flow. Monitoring your cash flow means you won't fall into debt without realizing it. Manage cash flow by:
Tight monitoring of your finances.
Demanding prompt payment from customers.
Paying your bills on time to avoid fees.
Leasing and not buying.
Not having a lawyer.
Lawyers ensure compliance and keep you within the law. Having a lawyer look over contracts and other legal paperwork keeps you in the clear and offers peace of mind. A lawyer will make sure your business opens and operates by federal, state, and local laws, as well as get you out of any tight spots.
Not filing for the proper legal structure and business registration.
You must start your business off on the right foot by filing for the appropriate legal structure. There are several types of business entities that you could consider:
Sole proprietorship: where one person handles and is accountable for the business.
Partnership: owned by two or more individuals. These allow partners to share profits and losses and make decisions together.
A Minnesota limited liability company (LLC): allows owners, partners, or shareholders to limit their personal liabilities while enjoying the tax benefits of a corporation and the flexibility of a sole proprietorship or partnership.
Corporation: an entity separate from its owners with its own legal rights. A corporation can sue, be sued, own and sell property, and sell the rights of ownership in the form of stocks.
Cooperative: owned by company employees who all have a hand in business decisions (often by vote) and take a share of the profits.
Many small businesses choose to start an LLC for the benefits and ease of formation. In fact, you can set it up on your own to avoid large lawyer fees or by using a formation service to do the legwork. Do note that different states have different regulations, so check the rules in your state before starting the process.
Start your business off on the right foot by setting yourself up correctly. Set your business up as a defined legal entity and launch it with a clear business strategy. Ensure you have a tight rein on your cash flow and keep emotions out of the workplace.
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