Nearly half of all new businesses don’t make it past their fifth anniversary, according to the U.S. Small Business Administration. That makes it crucial for mom and pops to get basic strategies right from the get-go.
Even though economists tell us the recession has been over for four years, banks remain as stingy with business loans as ever. There’s little room for error. So it’s important that small-business owners recognize the pitfalls that await them and learn how to avoid them.
There are five common mistakes that stand out as potentially crippling problems for small businesses:
1. Trying to Do It All
In a small business, everyone pitches in and does tasks that fall outside the lines of their job descriptions. But no matter how eager you and your employees are to do it all yourselves, know when you’re in over your head.
Don’t be afraid to outsource tasks that your team can’t handle. Your new venture demands that every aspect is handled by someone, who understands what they’re doing. And no amount of good intention will turn an IT specialist into a good bookkeeper.
2. Assuming a Product Will Sell Itself
Your business might sell the most revolutionary, indispensable product in the world, but it won’t sell if nobody knows it exists. Develop a comprehensive marketing plan to make potential customers aware of your business.
Nothing generates more business than word-of-mouth. But cultivating a customer base to generate that kind of buzz takes in-person marketing that goes beyond social media. Promote your business actively within your community so your neighbors know who you are and what your business does.
3. Not Understanding Finance
Some entrepreneurs excel at broad, big-picture concepts. Others are great at the hands-on delivery of their product or service. But few are interested in the essential minutiae of running a business such as finance. Unfortunately, no business can make good decisions without having an understanding of the numbers.
How do you know that your number one seller is actually the product with the most growth potential? It may be that your attention would be better focused on growing another product. Yet there are businesses you’ll see on “Crowd Rules” that just do not have that data. And without those numbers, it’s impossible to make good, informed business decisions.
4. Ignoring the Most Profitable Aspect of a Business
If your business isn’t doing as well as you’d like it to, it’s easy to become impatient and try to shake things up with a new approach or a new product. It’s very easy to chase this dollar of revenue here, this dollar of revenue there, without actually determining which sale is optimal.
Businesses that do well stick with what they do best. If you can just find a focus in business and not be distracted, you’ll find the way to succeed. Find something to focus on and go after it.
5. Going In Without Enough Capital
Running a small business brings challenges that you won’t anticipate no matter how prepared you are. That’s why it’s essential at the outset to start out with enough capital to see a business through its infancy and initial growing pains.
Important questions to ask include: What will your production costs be? Will you need to rent warehouse space? How many employees will you need? Once you know the answers to these and other questions, you can start to build the capital you’ll need to get your business off the ground.