Running a business can be scary, grueling, overwhelming and exhilarating. If you have your own business or are thinking about starting one, it will probably be one of the most important and risky investments of your life. The process can be so time-consuming that it’s easy to get caught up with the day-to-day responsibilities and overlook broader factors that could make — or break — your business. Here, eight common mistakes you want to avoid as a small business owner.
Mistake #1: Having unstructured goals. Without structure for what you want to accomplish with your business, you’ll set yourself up for a lot of disappointment and frustration that could lead to your business’ early demise. Make sure that your goals are SMART: Specific, Measurable, Accountable, Realistic and Time-Sensitive. And have SMART goals for the short (1-3 years), mid (4-6 years) and long-term (7-10 years).
Mistake #2: Not having a business plan. Business plans are vital, even if you’re not seeking startup capital from investors. They help you pull your head out of the clouds and get a grip on reality. A good business plan should include a thorough analysis of your target market and competition, financing needs, cash-flow estimates, and a break-even projection, among other things.
Mistake #3: Under-funding. Not having enough startup money can force you to tap personal savings or go into unplanned debt and jeopardize your or your family’s financial stability. Doing a proper business plan can help you understand what you will need for your business to survive through the startup period and avoid putting yourself and potentially your loved ones in a precarious position.
Mistake #4: Poor risk management. Better to be safe than sorry, right? Think of the worst things that could happen to your business and then insure against them. Make sure to protect all of your assets, including space, equipment, yourself and any other key employees. This means budgeting for and buying adequate property and casualty, liability, disability and life insurance.
Keep reading for 4 more common mistakes
Mistake #5: Not tracking income and expenses. It is critical that you know where every dollar your business earns comes from and where every dollar goes. Not doing so is like driving a car blindfolded…you are bound to crash quickly. Tracking will help you identify where to cut back and where to invest more. Many entrepreneurs use the accounting software Quickbooks, but at least use some kind of spreadsheet to track your cash flow closely.
Mistake #6: Not re-investing enough in your business. You have to spend money to make money, right? It’s challenging to see the value in reinvestment when income is lean and expenses are abundant. But that often is when you need to reinvest the most, whether it is in hired help or better marketing. Spending money on process efficiency and customer experience improvement is imperative for your long-term success, even if it means making other sacrifices in the meantime.
Mistake #7: Insufficient cash stash. Reinvesting in your business is key, but it’s also important to have a cushion — even when times are good. That way you’re protected if you hit an unexpected rough patch and your income plummets. To avoid the risk of going into debt or sacrificing assets, aim to set aside at least six months to a year’s worth of operating expenses in a separate savings account — ideally in addition to a personal emergency fund.
Mistake #8: Being too much of a risk-taker. Yes, you’re an entrepreneur. You were born to take risks. But that should not mean endangering your hard-earned profit and the business itself by choosing overly-aggressive investments. Once you are past the break-even point and have enough stashed in emergency savings, you should still be sensible with your surplus investment strategy. That means investing in a well-diversified portfolio of different kinds of investments that will offer solid growth opportunity and protection against significant losses.
Bottom line: Owning a business can be the hardest and most rewarding experience of your life. Many who try fail. But if you know what not to do and are careful with your business planning and execution, you are much more likely to be one of the success stories.