Starting a new business can be an exciting time, and many entrepreneurs are eager to turn their great business idea into a successful venture. The unfortunate reality, however, is that many start-up businesses will not make it past the first year.
Others may continue to be in business but will barely be profitable for the owner. While each business will have its own unique set of challenges, many of the start-ups that fail early on do so because of some big business mistakes. By identifying what these big mistakes are, entrepreneurs may be able to improve their efforts so that the new business is not negatively impacted by them.
1. Failing to Create a Detailed Business Plan
One of the first steps that entrepreneurs should take when thinking about starting a new business is to create a business plan. Some business plans are fairly basic, but this is perhaps one of the best planning tools that a new business owner can have. Therefore, it should ideally be as detailed and thorough as possible.
A business plan may cover topics related to product development, marketing, financing, daily operational costs, office space, facilities, logistics and more. When preparing a business plan, take the time to thoroughly research the market and other factors. This will make it easier for the entrepreneur to better understand the risks associated with the business plan and to develop a more comprehensive budget and financial plan.
It also can help a new business owner to refine who the target audience is and what the marketing strategy is. By doing this up-front, the entrepreneur will have fewer adjustments to make after the business doors are open and the business has overhead to pay for.
2. Not Completing a Risk Model
All businesses face different types of risks, and a risk model can be created to identify what the risks are that the new business will face. A risk model also is used to identify ways to prevent those risks from impacting the start-up business as well as to develop plans that can be immediately put into action if the challenges do develop.
This can save the business owner time and money while operating the business. Some new business owners will create their own risk model, but many will outsource this important task to a professional consultant.
3. Not Locating Financing Up-Front
In addition to these common business mistakes, there are also other common mistakes that new business owners make with regard to financing and funding. When the entrepreneur creates a detailed business plan, he or she will have a better idea about the amount of start-up capital that is required to get the business’s doors open.
This includes funds to develop its products, for up-front marketing expenses and for office or facilities space. In addition, the business owner will have regular operational costs related to the business as well. All of these factors must be taken into account up-front, and savvy entrepreneurs will make a solid effort to line up capital before opening the new business’s doors.
Capital and funding may come from the business owner. For example, some may refinance a home mortgage to obtain capital. Others will locate a business partner who may participate actively with operations or who may simply be a silent investors and partner.
Some entrepreneurs will seek venture capital, obtain a business loan or obtain financing through various other methods. Many of these options may take weeks or even months in some cases to secure funding through, so it is best to secure the funding before opening the business’s doors.
4. Taking On Too Much Overhead Too Quickly
Even when the business is well-funded up-front, some new business owners will make the mistake of taking on too much overhead too quickly. For example, they may move into nicer office than what they can afford rather than continuing to use more affordable office space options for a little while longer.
Some will hire employees a few months too soon or may not negotiate a lower salary for employees. Both one-time expenses and regular expenses should be reviewed carefully with a new business as well as later when the business is more established.
Funding should be available to pay for one-time expenses, and the business owner should have adequate, stable income in place to support new overhead that will be a regular expense. In addition, the business owner should consider other ways that the money could be spent to encourage growth as an alternative, such as marketing or product development.
Many businesses that fail in their first few months or years do so because the same common business mistakes are made. Entrepreneurs who are committed to being successful in their endeavor are wise to understand more about what these mistakes are and to take steps to avoid making them in their own business.