At some point in life, practically everyone thinks about starting a business. The thought of being your own boss is certainly appealing, but it comes with a great amount of risk as well. According to the recent Small Business Administration report, nearly fifty percent of small businesses fail in the first five years. Sure, someone’s luck can change overnight – there are numerous factors you simply cannot have control over. However, you have the control of how you manage your operation.Mistakes are an expected part of the learning process, but too many of those can hurt your business and force you to close up shop before your initial year ends.
When you are starting a business by yourself, with little to no experience, it is certainly better to learn from other’s mistakes. Let’s share some of the common mistakes small business owners tend to make so that you can avoid them and make your business more efficient.
Expecting Overnight Success
Great monuments, structures and cities were not built overnight and the same goes for your establishment. Running a business requires determination and hard work, while you may have a wonderful vision and a quality product, you cannot expect a huge payoff immediately.
Therefore, you have to be realistic, set small and attainable goals, and remember – focus and determination deliver success.
Hiring the right people is crucial to the success of any company, but for the smaller ones it is even more important. In order to increase your chances of hiring the best talent available, you have to be aware of The Halo Effect.
It is a common psychological trap in which our overall impressions of a person creates a false halo that prevents us evaluating if the candidate is right for the job. Try to consult several people throughout the hiring process, so you can have a variety of perspectives on job applicants.
In personal finances, the general rule of thumb is that you have to have enough of money to cover six months of expenses in case of emergency. Although the same advice is sometimes given to small business owners, it is not really practical or sensible. If your company is relatively new, you probably don’t have a constant stream of revenue, so stashing that much money is not a realistic goal.
Nevertheless, you have to have a small portion of your profits in a reserve account, ready for the worst-case scenario. If you don’t plan properly, you might be forced to turn to credit cards, taking a risk of getting yourself stuck in huge debt. Always keep your personal and your business account separated.
Managing the Operating Costs
Undercapitalization is one of the top reasons for failure; your business requires straightforward accounting of your financial costs. You must have a detailed budget that includes business cost and cost of maintenance.
It is equally important to keep your revenue stream flowing from both sides, so if you have clients who are unwilling to pay even after you’ve provided a service or shipped out a product – try finding a company that deals with debt recovery help. Your bottom line should always leave a room for advancement, so prepare for the worst when paying your costs and insure the payments when you are accepting funds from clients.
For every business owner it is crucial to understand that just because you are running things – that doesn’t mean that you should run after them at all times. Smart management is finding the right person for the job and invest in their abilities so that you could focus on what’s important.