Avoid These 4 Common Mistakes Made by New Businesses
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Starting and running a new business can be difficult and not every business will succeed. According to the most recent data from the U.S. Bureau of Labor Statistics, almost one in five U.S. businesses fail within the first year.
But it's failure that has guided many successful entrepreneurs. Here are several common mistakes shared by experienced business owners and industry experts.
Not staying on top of what's new and works. It's essential to keep tabs on the latest and best in your industry and customers' changing needs if you want to stay profitable.
Because failing to know about your competition's successes, the industry's top players, or the latest in customer trends — or not making changes to your small business after you realize what's needed — could cost you.
For example, business banker John Kyle points to the industry battle between major players in the movie rental industry in the early 2000s.
"Okay, so you know all about the Blockbuster vs. Netflix story, right? You also know who won that battle, and of course you know why," Kyle writes in an Entrepreneur blog about the types of mistakes he's seen as a longtime banker working with small businesses.
Although widely known, a majority of business owners continue to operate as usual, even when aware that they are losing clients and need to make changes, he added.
Overspending. Even with a good business plan, new entrepreneurs can misstep when it comes to controlling costs.
It pays to be frugal with your money until your business has a proven track record of profitability, writes Jane Haskins on Legal Zoom.
She warns new business owners to be wary of "budget-busters" like an office or retail space that is overly large or pricey and having more equipment than required.
Be sure to have a budget to track your cash flow and understand how much you're spending.
Failing to manage your finances effectively. Your business's success depends heavily on your ability to handle your finances, explains entrepreneur Chris Massimine, CEO of Imagine, in a post for Entrepreneur.
There are always methods to make your money management procedures better, whether you're a seasoned businessperson or just starting out, Massimine wrote.
Also, be wary of taking on debt, warns Haskins in the Legal Zoom post.
You'll almost probably be required to sign a personal guarantee as a new business owner for the money you borrow, which means that even if your company fails, you'll still be liable for paying those obligations, she says.
Having a plan is key to mastering your finances, Massimine says.
You need to be aware of how much money you have at any one time as well as where it is going, he writes in the Entrepreneur blog.
"A good approach is to set up a budget and stick with it so that you don't get over your head financially and become overwhelmed by stress."
Not getting it in writing. One of the biggest mistakes a new business owner or entrepreneur can make is failing to get a contract.
"No matter how good relationships may be, they can come to a screeching halt when systems and agreements are not put in place," says Michelle Colon-Johnson, founder of 2 Dream Productions, in a Business News Daily story.
Haskins also talks about this mistake when it comes to partnerships, emphasizing that every business needs a written document that explains each partner's rights and responsibilities and describes what will happen if one of them leaves the business.
"All too often, though, business partners fail to put anything in writing because they get along well with each other and think they’ll always be able to resolve things informally," the Legal Zoom blog says.
"This is frequently untrue, and disputes between partners can be difficult, expensive, and emotionally draining."