Starting up a new business venture is rarely a walk in the park; it requires a lot of time and commitment and there is no businessperson out there who hasn’t questioned their own motives at some point. What makes things even tougher is some of the avoidable mistakes business owners make in the embryonic stages of their enterprise.
From my experience in business, here are some of the most common slip-ups people make:
1) Not getting proper financial advice from the start
In the first couple of months, nothing is more important than getting the correct advice on how to spend money, even before you start trading. It is important to hire an expert in this field to help you draw up plans and budgets and allow you to use your finance wisely. Not doing so can lead to cash flow problems later on that could hinder the company’s progress or, worse still, stop it altogether.
For example, you may at some stage need a business bank overdraft. Asking your bank for an overdraft when you actually need one will leave you in a very limited bartering position. Instead, it’s a good idea to request an overdraft facility before you need one, when you have cash in the bank.
2) Not tying clients to contracts
This can be problematic for several reasons, but the main one is that it can lead to a disagreement over what was supposedly agreed upon when the deal was struck. This can cause problems with payments and customer retention, and can even lead to long and expensive legal battles in court – hardly ideal in a business’ formative years.
Having a clear and concise contract stating the agreed terms of business can help eradicate these problems and lead to good, healthy business relationships. This leads to more chance of customer retention and a reputation likely to draw in new business.
Additionally, looking at the long-term future of your business, if you don’t have your clients tied into contracts it will affect the value of the company. Whether or not you’ve ever considered an exit strategy (selling your business), having contracts with your clients makes your business more stable, and more valuable.
3) Trying to do everything yourself
You will be under no illusions over how time consuming running a business can be, and owners will often start by aiming to do everything themselves and find that they do not have the time, leading to missed deadlines or jobs not being done correctly. Taking on too much work doesn’t do the individual any good either, and can lead to burnout.
One person cannot have the in depth knowledge of every part of the business, hence the saying “Jack of all trades, master of none”. Therefore, it is important to hire people who have special knowledge in certain parts of the business and delegate these aspects of the business to them, giving you time to focus on your own areas of expertise.
This is where may businesses fail, as business owners are reluctant to ‘let go’ of any aspect of their business and trust it to someone else. That ‘first hire’ is crucial to the success of a business, and identifying who you need, what skills you require, and what parts of your business you’re going to trust to someone else is a difficult decision. When we made our first hire at Engage Web, we looked at two or three different areas in which we could employ someone before choosing the area that would allow us the best chance to grow the business. Always, at the back of your mind, you’re thinking you could do the job better, faster and cheaper (as you’re happy to work longer hours and during weekends) but, without trusting someone else to join your company, you’ll never grow the business, never be able to expand, and will never have anything more than a lifestyle business.
4) Thinking being your own boss is going to be easy
It’s often said that when you are your own boss, you can work at the times that suit you, often with shorter hours than you would work for someone else. This is a romantic notion but largely a myth, especially when starting up a business, as the owner will often have to work long and unsociable hours and put their own money into the business to ensure a strong start. Any business owner who thinks they can get away with working as and when they please is setting themselves up for a big shock.
This also applies to vacations and days off as, until you’re able to hire staff to cover while you’re away, taking a holiday becomes a thing of the past, or something you can only do if you accept that you won’t be paid. Rather than looking forward to public holidays, you’ll end up cursing them as lost opportunities for doing business.
As anyone who has gone through the process will testify, unless you start your business with working capital or are very lucky to hit the ground running, you’re unlikely to be paying yourself for the first few months. Equally, when your business hits a rough patch (and most will), you’ll have to meet your obligations such as paying your staff, your rent, and other bills before you pay yourself.
5) Not invoicing correctly
This is a particularly common problem among freelance workers – they can forget to invoice and to chase invoices, meaning that they run out of money. Some freelancers also tend to chase new business, then stop chasing when they have some as they’re too busy working. This is short-term thinking though, as they will only have to be on the hunt again when that job ends, leading to a series of peaks and troughs in their cash flow.
Also, not having correct procedures for recording and filing invoices and other important documentation can lead to things being misplaced. The result of this could be cash flow problems, as money could be leaving the business unexpectedly.
For creative people who, with the greatest respect, may not be the most organized (like myself), it’s imperative you ally yourself with someone who has complimentary skills, rather than the same skill-set. This is a big why reason many businesses fail. When two people go into business with each other, they often have the same interests, ideas, and skills – which means they also have the same weaknesses. Choose your business partners very carefully and make sure, between you, you’re not lacking anything vital to succeed.
6) Saving money on the wrong things
Everyone wants to save money, but you need to ensure you save in the right areas. In the first few months, you want to draw in new business to generate revenue so you can’t cut money on aspects of marketing and advertising. Finding cheap alternatives will not always work either, as they can be generic, irrelevant to the business, and not bring in the quality that would be expected, meaning it could be a waste of money.
For example, one area you could try and save money is with technology. You could buy an older, lower spec computer, or a cheaper version of the software but, as you grow, you could find this was a costly mistake and you’ll have to replace what you have bought very quickly.
7) Ignoring your competition
It is crucial that you identify who your competition will be and what you can offer that they can’t. You need to ensure that the market you are trying to enter is not already monopolized or saturated, thus hindering your change of attracting a loyal customer base.
Pricing can be a way to attract customers at the start of your venture, but it is important that you do not spark a pricing war against larger, well-established rival firms. The longer a company has been set up, the more likely it is to have bigger profit margins, and this can allow them to employ pricing strategies with which smaller firms can’t compete.
Simply being a ‘me too’ business won’t be enough. You need to have a clear vision on what makes you different, and why your customers should choose you over your competitors. You need to know the sales messages your competitors are using, why they’re using them, and why you’re better. Without this knowledge, you’ll lose a lot of business to more established companies even if your product is actually a better one.
As you can see, these mistakes are all relatively simple and avoidable, yet they’re the downfall of many modern businesses. By sidestepping these “seven sins”, you can ensure your business doesn’t fall by the wayside.
Darren Jamieson is the Technical Director of Engage Web and writes for Minuteman Press on franchising in the US and throughout Canada, Australia and his native United Kingdom. He has extensive knowledge of the franchise industry, and of running a business, having helped many franchise clients through Engage Web.
Image Credit: www.justworks.com