Many entrepreneurs follow the Phil Knight of Nike, Inc.’s philosophy of, “Just do it” when they begin new business ventures. While much can be said about the courageous risk taker approach to starting a business, some risk aversion is helpful. In reviewing Top 10 lists from a number of sources, we list the following as sort of a “top ten” of the top ten.
1) Not having a business plan. While lots of successful businesses begin without a business plan, there are even more that fail because they lack any plan. While a plan does not need to stunt creative energy, sitting down with a consultant, lender, or relying on self-help books and even online resources like those available on the Small Business Administration’s website can help. The bottom line is plan. Whether you commit to a formal business proposal or jot down details on paper, knowing your business direction and conceiving contingencies for where you’d like to go and how you might get there is a must.
2) Cash flow. Financially Not having enough money to sustain the business in the first few years. Everyone can always use more money, but realistically creating a contingency plan for what you will do to financially sustain a business that generally will not see a profit for a while, is a contingency you cannot afford to overlook. Many business owners opt to not draw a salary or to maintain other sources of revenue until it is evident that they the business can sustain itself.
3) Borrowing too much money. Relying mostly on borrowed funds to sustain a business can be a recipe for overwhelming pressure and stress on a new business owner. When the choice exists, rely on savings rather than credit lines and bank loans to start-up a new business.
4) Not managing expense and spending too much money. One direct consequence of operating without a plan is spending too much money on starting up the business. If you begin your business spending conservatively, you will maximize a ‘shoe string’ budget and manage unexpected fluctuations that all new businesses face in the start-up years.
5) Hiring employees you don’t need. Few fail to anticipate all of the costs involved with hiring employees. Payroll taxes, wages and overtime costs, workers’ compensation insurance, sick and vacation leave, healthcare benefits, managing workplace claims, and providing incentives to make sure employees feel just as invested in the business goals and objectives as much as you do, can figuratively and literally break a new business. Outsourcing can, of course, help with managing costs and limit risks inherent to complying with local and federal laws imposed on employers. Also, hiring slow and smartly will make sure that your employees take ownership in the success of the business and avoid a 9 to 5 approach to just collecting a paycheck.
6) Renting space you don’t need. Consider your business needs carefully, perhaps operating out of your home, relying on virtual office space, or sharing an office could be the way to go initially. If these options won’t work, you may find turn-key office solutions work well for new businesses.
7) Not enough marketing. Due to minimal financial planning, it is common to see new business owners unable to market their business well due to financial constraints. Marketing does not require a huge budget, but it is a good idea to reserve just enough money to get your company name out there. A business that no one knows about, is doomed to fail. By being creative and utilizing resources, you can better allocate your marketing dollars so you can follow a plan and start building a brand. You can also choose to work with a marketing consultant to identify a marketing plan, which is ideal in the beginning stages of your business. Email blasts, newspaper ads, window signs, business networking, cold calls, and developing business affiliates often hold the key to success for new business owners.
8) Not knowing how to collect for your services or product. Some entrepreneurs are really good at rainmaking but lousy at getting paid. Collecting pay in a systematic way that assures consistency and limits the possibility of going without pay requires skills, confidence, and devotion to making sure that this part of your business does not falter. Outsourcing collections can prove comfortable for new owners, but when new customer/client relationships are being formed, you cannot afford to overlook supervising how money is collected by your business.
9) Not protecting personal assets. Lacking proper insurance coverage, commingling business and personal funds, and generally underestimating the self-discipline required to manage your business as a separate entity can result in a merging of your business identity and personal life legally and practically speaking. If you decide to limit outside expertise in your initial business start-up, evaluating how you should protect your personal assets and business identity is not an area you should skimp on. Frankly, you can manage this aspect of organizing a new business by meeting with a reputable business insurance broker like PALM Insurance Brokers.
10) Having the wrong business structure. Deciding on whether to organize your business as a general partnership, corporation, limited liability partnership, or other business structure is an important step that requires guidance. While you may be able to form a business without a law degree, you may not be able to enjoy the full long-term protections and benefits afforded to different business structures without meeting with a legal and/or tax professional.
As a new business owner, you can save yourself headaches and overcome financial difficulties by staying diligent of all the areas that could possibly affect your business negatively. We trust this check list will be helpful as you begin your entrepreneurial journey towards business ownership.