1. Not Enough Capital
Assessing small business start up costs is tricky. Most business owners project operating costs to the point of breakeven. (The breakeven point is when the daily or monthly income from the business equals the daily or monthly expenses to stay in business.) What start up costs should include is all the costs required to open for business, and all the operating costs to the point of profitability. This means instead of figuring start up costs to the ‘breakeven point,’ the point should be when the owner estimates he or she will be able to get paid the minimum salary required.
Estimating start up costs should include these categories:
•Start Up Purchase Costs: Equipment, furniture, insurance, business licenses, etc.
•Reoccurring Services Costs – utilities, telephones, outsourcing, insurance, business licenses, etc. (Notice that some start up costs are also reoccurring costs.)
•Advertising/Marketing Costs – Here are some of the biggest pitfalls for small business owners. Even big businesses often have no idea how much they will need to spend in advertising dollars to bring in enough business. Most can only estimate this based on experience. .
•Product or Inventory Costs
The purchase and/or financing costs of inventory.
•Holding Costs (of Products or Inventory)
if inventory is required, housing, insuring, and handling inventory can become expensive.
2. Spending Too Much
While this seems to be easy to avoid, this is one of the most common start up mistakes. One distinct advantage of the home based business is low overhead, but many of these business owners buy services they don’t really need, or max out their credit cards on equipment, computers, cell phones, PDAs, copiers, printers, and other gadgets
Always be forced into overhead.
Don’t buy anything unless you know you need it.
3. Lack of Knowledge
Most people do not lack the knowledge about the industry they start a business in, but about business in general. Just because you know your stuff at your job, does not necessarily mean you could succeed on your own.
Leaving a job to start a business even in the same industry means:
•You wear all the hats - While on your job you might be responsible for purchasing, in your business you’ll also have to fill all the other roles such as customer service, human resources, management, custodian, delegator, administrator, file clerk, office manager, payroll administrator, consultant, and CEO.
•The buck stops with you – This one is huge. So many people get overwhelmed quickly in their own business because they did not account for the seemingly boundless obligations. At your job, your true responsibilities and liabilities are limited. Mistakes could be another department’s fault, or when a client sues your employer, even if you were involved, you might have no real personal liability. In your own business, the buck stops with you. You have to answer to every dissatisfied customer and deal with every new challenge.
Define what your daily duties will be and make a list of everything you imagine that will be your responsibility.
•Adherence to Law – You need to know what laws your business is subject to. This includes licensing and permits, employees, insurance requirements, tariffs, taxes, payroll withholdings, record keeping, and more.
There is an enormous amount of information required to operate a business.
•Administrative Techniques – including employee, outsourcing, task assignment, prioritizing, and organization.
•Advertising – types, effectiveness, costs, tracking methods, creation,
•Bookkeeping – record keeping
•Financial Analogy and Forecasting – profit and loss statement and balance sheet interpretation
•Law
•Marketing
•Personnel Management
•Product or Service
•Trends
4. Not Adequately Defining the Market
A small business can easily exhaust all capital in advertising. Whether it’s traditional print ads or pay per click, if the target market is not reached, the mistake could be realized too late.
5. Mismanagement
New small business owners often start without a plan or fail to follow their plan. Learning to prioritize, organize, and improvise can be new to people who have not worked in previous management positions.
6. Not Having Contacts and Services in Place
There is nothing worse than needing a contact for a business transaction, and losing the deal before you can find the help. Having no or poor subcontract services can leave you scrambling to find help. This search alone can be enough to hurt a small business.
When in a pressure situation, many owners take shortcuts, make poor decisions, and choose subpar services.
7. Ineffective Marketing
This is mistake can include inefficient marketing, poor content, ill timed advertising, wrong target market, and overspending, and many more.
Learning your market and how to get business could be the most important aspect. Having more than enough business can compensate for mistakes or shortcomings in other areas.
8. Failing to Rectify Mistakes
Sometimes business owners fail to recognize mistakes, but even worse, when they do spot them, they do nothing. This happens for several reasons.
If the business owner has come from an employment position, many times he or she does not fully grasp that the buck now stops with them. They are used to someone else taking the responsibility. These owners often become immobilized in the face of a blunder, and do nothing. This is where a business mentor can be a lifesaver. Every new business owner should have one or more seasoned business owners to turn to in turbulent waters. Preferably, this person should be a home-based business owner who is or has been in the same or a similar industry. Before you go into business, mentor contacts should be established.
9. Refusing to Delegate
Small business owners are usually ‘take charge’ people. They know their businesses better than anyone else and can do most every job. In the beginning and as their business grows, these owners often retain duties and responsibilities far beneath their capabilities and not in the best health of the business. As if the Captain of the ship refused to give up swabbing the deck, because he felt no one could swab a deck like him, these owners hold on to tasks. Many a business ship has run aground with clean decks.
As a small business owner, you must decide which jobs would be better off delegated or outsourced.
Do not hang on to any duty, which would be better delegated.
Some people might do the job differently than you, but effectively reach the same results.
10. Time Management
Time is money. There are so many distractions in today’s world of business and a home based business is no exception. Few people manage their time effectively. All the conveniences such as cell phones, PDA’s, email, RSS News feeds, the Internet, online meetings, software updates, and online bill pay, can consume your time if not used wisely. The home based business can even face additional interruptions from family and chores.
You have to be self motivating.
When you're an employee, you have a job description and someone is usually telling you what to do, directly or indirectly. You will be in charge of your own actions as a small business owner. You can't just wait for business to happen. Becoming self motivated, the kind of discipline need to run a small business, can be a tough adjustment for people coming from long term employment.
Starting a business takes enormous energy. You can't afford to just coast along, go through the motions, or get burnt out. If you feel like quitting, you can’ give a two week notice and leave, without losing your investment and future income. Many new small business owners cannot even afford vacations or holidays for several years.
You have to be aware.
Again, the employee might not be trained to look for new opportunities. As a business owner, this is imperative. The chance to get new customers, move into a new market, offer a new product or service, could be missed if you’re not aware.
You need to adjust to uncertainty.
As an employee you are pretty much guaranteed a regular paycheck. As an entrepreneur, there's no guarantee.
You will deal with the uncertainty of the fluctuations of the economy, slow accounts receivable, surprise expenses, loss of clients, changes in technology, and trends.
So what’s the good news? You can learn or acquire the skills and traits needed to start and run your own business. You will not have a boss; you will be calling the shots. The successes of your business will belong to you. The freedom to earn in relation to your input can be invigorating.
