10 Costly Mistakes Small Businesses Make in Their First Year
The politicians tell us that small businesses are fuel for the economy – and so it’s time to do your bit for the home country. Ready to set up with a small business venture? While there’s plenty of opportunity and excitement ahead, it’s important to ask a few serious questions first.
Don’t make any of these 10 common mistakes that small business owners stumble over in their first year.
1. Don’t Overlook the Cash Flow
Accountants and other financial advisors are going to tell you that cash flow is the lifeblood of any business. This may be a touch dramatic, but it’s something that is often overlooked.
New business owners tend to focus on sales figures and how much they have to spend in order to service everything. You have to know exactly when that money is coming and when you have to write the cheques.
You have to be able to pick up patterns and initially you should maintain your cash flow analysis on a weekly, if not a daily basis. Your pattern analysis will allow you to predict and prepare for unexpected dips. Otherwise, there could be some nasty surprises in store without enough money in the bank at a particular moment, in order to pay something important — like rent. Here are some common cash flow problems to avoid.
2. What about Record Keeping?
Record keeping is an essential part of any business and is particularly important in new businesses, when cash is tight. Online accounting solutions like Reckon One can help streamline your entire bank reconciliation process . Once setup correctly, the software will Import your latest banking and credit card transactions, and will instantly organise them for you with a system that learns from you over time. This is handy for managing recurring transactions for regular clients and suppliers. Here’s a handy list of books and records that you want to keep.
It’s not just financial, either. Keep a note of when you purchase important assets so that you know when to service or replace them. You don’t want to endure a breakdown if it was foreseeable.
3. Are You Getting Proper Legal Advice?
It may be possible to do a lot of your accounting work online and only bring in the professional at the end of the year, but that doesn’t mean that you can do all of the heavy stuff by yourself. While it may be tempting to shortcut and take on a lot of projects at face value, sometimes it’s important to ask for full legal advice before going forward. Otherwise you could tread on someone’s feet, legally, without realising it. This is a good resource prepared by the Australian Government Treasury department to to assist small business owners in gaining a broad understanding of legal issues they may encounter. Topics include: Accounting and Records to Contracts, Dispute Resolution Proceedings, Import/Export and Customs, Privacy, Taxation and more.
4. Do You Expect Customers to Come to You?
One of the biggest mistakes that small business owners make when they are first starting out is to focus so much on setup and operation that they forget to spread the word. It is as if potential customers will stop dead in their tracks and say “what do you know, Dave just started a new business, let’s go and give him all our money.”
There’s a lot of noise out there and you have to generate a certain amount of your own as a new small business owner, if you are to be heard. So, what marketing efforts can you make?
For starters, try getting involved in the community. You can put up some cash to sponsor a kids’ football team, or to provide a prize for a charity gathering. Join local business community networks and go out and meet people this way. It requires time, but not cash.
Get in touch with other local businesses that share a certain amount of synergy with what you do. You scratch their back, they can scratch yours, and you can both spread the word about each other.
5. What’s Your Vision for the Future?
Plenty of planning is essential before you put out the ‘welcome’ mat in front of your shop. Do you have a clear vision for where you want your business to be at the end of this year and in a few years’ time? Of course, Rome wasn’t built in a day and you have to put one foot in front of the other and all that, but having a plan is crucial as it gives you something to aim for.
Many people shy away from creating a formal business plan, but it’s a valuable exercise. You can download a free Australian Government business plan template and guide here to help you put one together. This Business.gov.au article provides some handy tips to help write your business plan, and what to include plus steps for when you have finished it.
Remember your critical metrics. Where is your breakeven point? Do you have a cash flow analysis plan to highlight pinch points?
6. How Will You Handle Your Image?
Public relations is only something for big businesses, right? That’s what many small business owners think when they initially start off.
But in truth ALL businesses have to be very careful about reputation. This means that when things go wrong (as they will now and again) you handle the matter carefully, fairly and openly.
Think about it like this: in a service-based business, reputation is all that you have when all is said and done. According to the US White House Office of Consumer Affairs, a dissatisfied customer will tell between nine and 15 people about their experience.
If you encounter problems that damage your brand, here are some ideas to help you reset.
7. Will You Protect Your Personal Assets?
It’s tempting to choose the simplest format when you set up your business and this normally means setting up as a sole trader. Small business owners often tend to think that simpler is better, without all of that red tape, but when you choose to register a business, then you can often protect your own personal assets a lot better.
This means that if someone tries to sue you, they are suing the business rather than you as an individual. Not worried about being sued? Maybe you’re right and it’ll never happen, but do you want to take that risk?
8. Are You Trying to Do It All?
You might think that you need to be the chief cook and bottle washer when it comes to your new business venture, as some well-meaning friend may have told you so. For sure, you have to take on a lot of things when you start up by yourself, but it’s going to be a short road if you wear yourself out and overlook the essentials. Know what you’re good at and get someone else to handle the rest wherever possible.
Email is a big time-waster, for example. Don’t work to other people’s agendas by constantly reacting to new arrivals in your “in” box. Resolve to only check your email at certain times of the day. Even better, plan what you’re going to do the following morning during the preceding evening. Then, do not open your email box until you’ve finished those important tasks.
If you’re still struggling with time management, check out these time management tips for small business owners.
9. Have You Done Your Research?
Are you trying to wing it, or did you do an adequate amount of research before deciding to launch your concept to the world? This is one of the biggest mistakes that new business owners make. They assume that the market is going to buy their stuff without doing the proper amount of research first.
Don’t become so engrossed in your new idea that you overlook some of the obvious. Does the community actually need another company selling widgets? Is there even any demand for your type of widget?
Here is a great inc.com resource to help you look at market research from a variety of different angles.
10. Are You Pricing Correctly?
It can be difficult to set prices for your products when starting out, as there are so many things to take into account. Never be tempted to discount everything all the time as a matter of course, thinking that this is the way to the top. It may work for Walmart, but likely not for you.
Make sure that you always build in something for profit and then have a separate margin that allows you to offer discounts. They are not one and the same.
Ensure that you have something that’s “value added.” You cannot compete in a sea of sameness with your competitors, so don’t be tempted to try and follow them all the way by simply mirroring their prices and their offer. Here is a guide to help you price your products more effectively.