The U.S. Small Business Administration reports that one-third of companies with employees fail within the first two years. By the five-year mark, half of all start-ups with employees shutter. Although factors like major economic downturns and once-in-a-century pandemics can cause start-ups to fail, owners often bear much of the responsibility when their businesses close. Avoiding these common mistakes can help increase your chance of success.
1. Choosing the Wrong Partners
Starting a business with your best friend or a relative may seem like a great idea, but all too often, turning friends and family members into partners leads to disaster. Think objectively about the person, identifying character flaws that may undermine your efforts. If you ultimately choose to proceed, don’t use a friendly handshake to make agreements. Put everything in writing in a legal contract to protect your interests.
2. Opting for the Wrong Business Structure
The structure of your business determines everything from how you’re taxed to what type of personal legal and financial exposure you have. Although it’s possible to change your business structure, doing so is costly and time-consuming, making it better to carefully weigh your options before you launch your start-up. Many small business owners opt for limited liability companies (LLCs) because they:
- Limit personal liability
- Offer certain tax advantages
- Require less paperwork
- Provide greater flexibility
Be thorough and brutally honest with yourself about your own finances. Wearing rose-colored glasses when you look at the financial future of your business is a surefire way to fail. What are your assets? What is your debt to income ratio? Lenders, potential partners, and investors take a good hard look at those before they consider working with anyone. Assess your own financial prospects for your first year and then project that out up to five years in the future. That’s what they’ll be doing, it makes sense for you to do it first.
3. Failing to Protect the Future
A survey published by the Office of Advocacy of the SBA found that owner illness or injury is one of the leading causes of business failure. Key person disability insurance can mitigate these risks. This type of policy provides payment if a key person, such as the owner, can’t work due to an accident or illness. Having one can help keep your business afloat if the unthinkable happens.
4. Going in Without a Plan
Business plans aren’t optional for successful businesses. A thoughtful plan gives you a guide to follow as you launch your business. Most effective business plans are 30 to 50 pages long and include:
- Introduction
- Market analysis
- Company description
- Marketing and sales strategies
- Product or service description
- Equity investment and funding information
- Financial information
5. Forgetting About the Power of Marketing
Offering an innovative product or service means nothing if no one knows about it. A well-thought-out marketing plan that clearly defines your target market and lays out a strategy for reaching it is essential to your business’s success. With most Americans reportedly using YouTube and Facebook on a regular basis, according to the Pew Research Center, social media advertising can benefit most marketing plans. If your ideal customer is under the age of 30, for example, Instagram, Snapchat, and TikTok may also help you reach your target market.
Get to know SEO. Search Engine Optimization is how high your website ranks when people go searching for something. You can pay for your site to be at the top of the results page but that’s insanely expensive. Organic results are when people find you without you having a paid ad. People are far more likely to click on a site that isn’t paid over those that are. It’s a complicated and ever-changing process, but thanks to SEO pros doing a lot of the research for you, you’re not wandering alone in the wilderness. It all takes some time to learn, but the payoff is huge.
Planning Can Help You Avoid Common Mistakes
Many of the above-described mistakes that entrepreneurs make stem from a lack of planning. Taking the time to carefully consider potential partners, researching business structures, securing a key person insurance policy, and developing business and marketing plans provide a solid foundation for success.
Author: Dean Burgess – excitepreneur.net