There are more than 5 mistakes that can destroy your new business. However, these 5 topped the list when I asked several small business owners what mistakes could ruin a new business.
5 Mistakes That Can Destroy Your New Business
1. Not Testing Your Idea
What may look like a great business plan on paper doesn’t always work. Before investing wads of cash, time, and leaving your day job – test your idea. Beta test your marketing plan on a few prospects. Does the product or service appeal to them? Are they open to listening to someone or something new? Would they consider using your services? How does the price point compare to others? Does the prospect see a payback from the service? Is your product or service perceived as solving a problem?
Why not spend a few hundred dollars and a few hours testing your idea before cashing in all your chips? You may avoid costly mistakes in launching your new adventure, or you may question its feasibility.
2. Taking on What You Don’t Know
I perform in a weekend band. Over the last few years, a dozen venues where we performed are gone. A few didn’t survive the economy and COVID. Unfortunately, a much too common reason is inexperienced management. One restaurant where we performed had been in business for more than sixty years. My parents ate there in the early 1950s. A nice fellow whose experience in the restaurant business included shipping and logistics (in other words, no direct restaurant experience) bought it and attempted to manage it. It was closed within six months, and it continues to sit empty. If you want to open a business in which you have little or no knowledge – work in the trade to gain experience or hire an experienced manager, who you trust, and let them do their job.
3. Not Knowing Your Legal, Tax, and Insurance Responsibilities
Choosing the wrong legal entity, not understanding tax obligations, or being under-insured can ruin a business and possibly your personal finances. If you’re not an expert in these fields, I highly recommend you retain an accountant and an attorney with small business and start-up experience. It could save you thousands of dollars.
A couple of years ago, a friend learned they owed the state of California over $100,000 in sales tax for products shipped there. They didn’t know they were responsible for collecting the tax. It almost destroyed their small business. What would a 100K hit do to you and your business?
4. Not Diversifying Your Services, Products, and Customer Base
Don’t bet everything on one number. Having a loyal customer who wants what you offer is excellent, but don’t get caught with only one customer. In today’s business climate, things can change quickly. If you have all your eggs in one basket, what happens if it’s spilled? Take care of that customer, let them be your anchor, but find more.
5. Not Having Enough Cash Reserves
Your line of credit can change in a minute or disappear, as many businesses have learned in the last couple of years. Spending money before you have it is a dangerous game. Accounts receivable isn’t money in the bank, and every business owner can tell you stories of receipts they’ve never collected. Unless you’re a CPA, seek advice from an accountant.
What Have You Learned?
The common thread of these five mistakes is preparation or lack thereof. If you want to escape these business killers, prepare yourself with knowledge, experience, finances, and expert help. Have you been involved in a start-up? What avoidable mistakes did you make? What advice would you offer?
How Can I Help You?
I like to help people and organizations, but I have three criteria I consider before taking an assignment – I believe in what the organization stands for, I know I can help, and it looks like fun. If you have any questions, Contact Me.
Does your business have a management training plan? Many organizations, large and small, use my book, The New Manager’s Workbook a crash course in effective management, as the basis for their leadership development program. I’m also available to conduct training in person or virtually.
Photo by Jose Fontano on Unsplash
When it comes to business ownership, testing can’t be stated enough. Even if one is confident in their strategy, it won’t be nearly as effective unless it’s put to the test and then later unrolled to the public. Great insight here!