Owning a small business can be incredibly rewarding. People generally start businesses they feel passionate about, and it gives them freedom and opportunities to grow that they might not have working for someone else.
At the same time, small business ownership is full of challenges, and as many good times as there might be, there are also bad ones that you have to weather.
You can’t protect yourself against everything as a small business owner, but recognizing common mistakes can help you combat them. The following are some of the biggest mistakes made by so many business owners.
Not Choosing the Right Entity Structure
When you’re starting a new business, at the very least you should form an LLC, but this is something a lot of new business owners don’t do. Your business entity may change as it needs to over time, but you should have a minimum level of protection in place.
If you don’t start a business and structure it as an LLC, it can have adverse tax ramifications, but it could also leave you personally liable if you were to be sued as an example.
Setting up the right entity structure isn’t as complex or time-consuming as you might think, and it gives you an advantage in your business from the start. When you don’t choose the right entity, it can cause some problems as well.
For example, you might be putting yourself at risk of facing legal problems, or you may find that because of the entity you selected, it’s challenging to raise capital.
If you’ve ever seen two businesses that seem pretty similar, except one is successful, and one is not it could boil down to a lack of research and planning. A small business run simply on a good idea alone isn’t likely to be sustainable.
Decision-making at every level needs to be based on data and research. Customers need to be carefully targeted so marketing dollars aren’t wasted. Businesses need to be able to point to why they made the decisions they did, at the time they did. Taking time out for the research is pivotal.
Not Knowing the Numbers
Business owners tend to be big thinkers, and they also tend to be creative, innovative and energetic. These are all great qualities, but sometimes this doesn’t translate well to accounting and understanding the numbers.
Not knowing the numbers of your business or taking a hands-off approach in this area can be irreparably damaging.
If you don’t know what’s going in terms of accounting, you’re not going to know how to be strategic in your objectives. If you outsource your accounting make sure you’re always communicating with the person who handles it for you.
Making Big Purchases Early On
Finally, you’ve started a new business, and you’re understandably enthusiastic. Unfortunately, that’s probably not the right time to make a big purchase unless it’s absolutely necessary.
A lot of startups will make the mistake of investing in an expensive new office space, or the newest technology as an example.
Business owners need to take a step back when they feel the urge to do this and think about whether or not it’s going to help grow revenue. In the early days of a business that has to be the primary objective.