Business 101: Learning From the Mistakes of Others
Business 101: Learning From the Mistakes of Others
As the employment sector continues to evolve, research shows that many professionals are ditching their traditional Small business owners often face competition from more well-financed companies when trying to achieve financial freedom. One of the best ways to build a successful venture is to learn from the mistakes of other small business owners so you don’t repeat them. Here are some common mistakes to learn from.
#1 – Leaping Without Looking
There are a number of formal processes that help a small business get established. Not taking the appropriate steps can put you at a disadvantage. For example, how well-versed are you in your industry? If you don’t have any prior business experience, you might want to consider an online educational program that allows you to secure your MBA or another related degree in economics, accounting, corporate leadership, or strategic marketing. An online program can make it a little easier to balance work, family, and school.
2 – Failing to Establish a Business Entity
To protect yourself and project a professional image, forming the appropriate business entity is a wise start. For example, consider an incorporation status as a sole proprietor or limited liability company. You might also opt for a “DBA,” or “doing business as” designation.
A business advisor can help you make a determination on the appropriate business entity based on your particular industry and business needs. There are tax advantages and protections associated with the various business entities, so recognizing and understanding them will help you make the best choice to achieve your own financial freedom.
#3 – Forgetting to Research Your Market
Market research will help you recognize your consumer demographic. Meanwhile, try to learn all you can about your competition. Your objective should be to know who your potential customers are, what they’re looking for, what their price points are, and how you differ from others in the same market. You can do some of this legwork yourself or hire a consulting company to do the research on your behalf. Once you know who you’re trying to reach, you’ll have a better idea of the types of products, services, and price points to establish.
#4 – Going Into Business With Friends
There’s an old saying that you should never go into business with family or friends. Too often, close confidants can disagree about the way the business is established, financed, or managed. That familiar relationship can be abused or taken advantage of, sometimes without the parties even recognizing what’s going on.
You’re better served hiring employees, contractors, or consultants as needed than trying to mix business, friendship, and family. Slade Law recommends ensuring all parties agree to operational and financial terms in writing and considers hiring a lawyer to draw up the paperwork so everything is set in stone and recognized by all.
#5 – Being Too Informal
Many small business owners have close relationships with their customers, which can lead to an informal structure with regard to orders, terms, and payment. It’s important to be precise and consistent in everything you do, right from the start, whether that’s asking clients to sign contracts, taking deposits upfront, collecting bills that are overdue, or otherwise having a professional degree of interaction. This isn’t to say you shouldn’t have cordial relationships with your customers; simply ensure you have some basic business principles in place that protect you and your company’s bottom line.
#6 – Cutting Too Many Corners
Small business startups operate on a limited budget, and while it’s wise to manage your budget line-by-line, don’t cut corners in key areas. For example, marketing and advertising may not seem essential, but they increase the number of customers you can attract. Understaffing your business also leads to problems. If you don’t have enough employees to handle your business load, customers will get frustrated and go somewhere else. Trying to reduce operating costs by going with cheaper products can also be problematic since it can affect your company’s reputation.
#7 – Mismanaging Your Money
It can take several years for a small business to find its footing, so careful budget management is important. In addition to strategic planning, it’s wise to anticipate unexpected downturns with an emergency fund. A good accountant can help ensure you stay on track for financial freedom and also handle your tax planning.
You’re better served hiring employees, contractors, or consultants as needed than trying to mix business, friendship, If you apply for a business loan, make sure you’re shopping around for the best rates and terms. While it might be tempting to finance early operations on credit, high-interest debt can quickly snowball. If you pursue this path, use caution and don’t let credit get out of control.
#8 – Failure To Plan Ahead
As a small business, especially if you are a startup, it’s important to have an understanding of where you are and where you plan to go. If you’re developing a new product or service, using a template to generate a product roadmap is a great way to keep you and your team on the same page as you conduct your day-to-day work. But planning the work isn’t the only kind of planning you need to do.
Small businesses have a great deal of financial ebb and flow, especially during the first several years in operation. According to the U.S. Small Business Administration, having an operating budget and business plan that you not only develop, but regularly consult and revise, can help you stay on the right path. This means taking periodic close looks at your products or services, your income and expenditures, and recognizing when to push forward or to back away. If you need help, you can ask for a consultation from SCORE—the Senior Corps of Retired Executives.
Many elements of a small business startup are trial and error, but you can set yourself up for financial freedom by taking a look at some common issues that arise during the course of business operations and learning from the mistakes of others.
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Guest Post by Elena Stewart of ElenaStewart.com
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