Drive and optimism are the fuel for entrepreneurial fire—but that doesn't mean you don't need to exercise caution. Carelessness has a price, and for the small business, a few missed details can pile up quickly. Here are some of the most common small business pitfalls entrepreneurs encounter as well practical ways to avoid them.
Not Having a Business Plan
Ingenuity, optimism, and enthusiasm are all essential for a small business to succeed. But are they enough? Nope. No matter how skilled a sailor you are, you won’t get far in a ship full of holes. A well-crafted business strategy is absolutely essential to profitability. Define your revenue streams and assess their reliability. (Consider hiring an accountant to help.) But remember, your business plan must remain flexible. You need to be able to adapt to changing customer spending patterns, market trends, and competitor activities.
Now you may be thinking, "Ugh... I didn't go my own way to write a corporate business plan." And that's entirely OK. Your business plan needn't be a 30 page epistle. In fact, try keeping your business plan to one page. That'll force you to trim the fat and get to the core of the business plan's purpose.
Unrealistic Capital Requirements
It doesn’t matter if you have committed customers or clients before you launch; chances are you will not see a penny of profit for the first six months. Without the money to keep the business running before you see profits, it won’t survive. Take the time to craft a detailed budget and make sure you include every detail, including a salary for yourself, taxes, licenses, materials, and marketing expenses. Once you have a solid budget in place, add 10 percent or more for emergencies. Then you’ll know just how much capital you’ll need to launch.
Marketing is often viewed as a secondary need—and that couldn't be further from the truth. Your customer has more choice than ever these days and you can bet your competitors are eager to capture their attention. A solid marketing strategy is built on thoughtfulness and planning. Be deliberate in choosing your marketing channels. The gold rule: figure out where your customers are and go there! You also want to plan out tactics over time so that you're not just pulling the trigger on things willy nilly. Establish KPIs (key performance indicators) for your marketing strategy and continually monitor and evaluate the success of your efforts. And then bring it all back full circle: ask your customers how they heard about you!
Lazy Financial Record-keeping
We've said it before and we'll say it again: a business without accounting isn't really a business. Yes, accounting can seem daunting with all its clunky terminology, but the more time you spend with it, the better you'll get at it—and the better your books will look. Up-to-date, accurate financial record-keeping is critical not only to reflect your business' financial health, but also to help you do great things in the future like take on investment, expand, get a loan, partner... everything comes back to your numbers. (Check out Kashoo U for a crash course in accounting basics.)
Growing Too Quickly
If things are going well, it’s time to expand, bulldoze the competition, and corner the market, right? Maybe... but you need to be deliberate. Rapid over-expansion—especially early in the life of a young business—brings a big new set of risks. Your financial records will tell you a lot of what you need to know. How fast has demand been growing? What does cash flow look like on a weekly, monthly and quarterly basis? How quickly does inventory deplete or how quickly does your time book up?
It's very easy to feel like things are going so well that expansion is the natural answer, but take the time to see what your financial records have to say. (They'll tell you a lot!)
Small business pitfalls don't have to drag you down. Stay organized, stay focused. And whatever you do, be sure to keep accurate financial records!