When starting a new business, you cannot hide the excitement since it’s a big venture. But the last thing you want to focus on is its failure. It’s always sad to see or hear a small businesses failing, but when they abruptly close down within a year or perhaps two of opening, it’s even worse. When this happens, it’s for the same reason; someone has started the wrong business in the wrong place at the wrong time. Therefore, you need to be extra careful with how you set up your start up business. You cannot afford to make mistakes when starting up a business.
If you want to start a business, here are the top 10 most costly mistakes that make your business fail.
#1. Lack of a Business Plan
Anyone who has been in charge of the most successful business will agree that were it not for their careful, methodical and strategic planning, all put together to make a business plan, success would not have followed. The same applies to most businesses on their start-up stage.
It is very important for every business to have a business plan. Most businesses fail because of the shortcomings in their business planning. The plan must be realistic based on accurate information and fruitful projections for the future.
A good business plan comprises of the following:
- Detailed description of the business goals, visions and keys to success
- Labor needed
- Probable difficulties and their solutions
- Financial estimations – balance sheet, income statement and cash flow analysis.
- Competition analysis
- Marketing, advertising and promotional activities
#2. Starting Your Business for the Wrong Reasons
Could it be the sole reason that you want to start your own business is because you want to make lots of cash? Do you think that if you start your business you will have more time for your family? Or maybe you want to start your own business so that you don’t have to answer to anyone else? If so, then its time to think again.
However, if you start the business for the following reasons, you will be in a better position of succeeding in this field.
- You have a great passion in what you are doing and based on your investigation, your product or service would fulfill a real need in the marketplace.
- You are fit physically and possess the required potential or stamina to withstand any challenges. In most cases health has always been overlooked and is responsible for more than a few bankruptcies.
- You have the drive, patience, determination and positivity towards doing what you love.
- You are not overcome by failure. You learn from mistakes and use these lessons to succeed the next time you face the same challenge.
#3. Poor Business Management
Among the top failures in business, poor management is always cited as one of the major failures. Most of the start-up business owners frequently lack the relevant expertise in business management in areas such as purchasing, finance, production, and selling, hiring and managing employees. Unless they seek help, business owners may soon face disaster. Another major reason for the downfall of a business is neglecting the business. A lot of care must be taken to regularly study, plan and organize and control all the activities of its operations. This will entail a continuous study of market research and customer data, an area that is prone to be disregarded once a business is established.
Don’t forget, a successful manager is a leader who is served with the responsibility of creating a working environment that encourages productivity. He or she must be a strategic thinker, able to make a vision a reality and hire competent people for the job.
#4. Inadequate Capital
The majority of businesses will not make a lot of money when they first open, and a large proportion of the new businesses will not make significant money for some years. Start-up funding is always measured in time. Every new business that isn’t profitable only has a certain amount of time left before the funds run out, and they have to stop. This is referred to as runway. In simple words, how much runway do you have left? It’s a good question since it reminds you that when the money you have runs out, you are either going to be dead or airborne.
Inadequate capital means not enough to get airborne. Therefore, it is important to ascertain how much money your business requires; not just the cost of starting the business, but the actual cost of staying in business. Take into consideration that most business may take a year or perhaps two to get going properly. This simply means you will require enough funds to cover all the costs of staying in business.
#5. Poor Location
Most likely you have heard that location is critical to the success of your business. If you are not aware, then here it is. Whereas a good location of the business may enable a growing business to survive and thrive, a bad location could be a threat to even the best-managed enterprise.
Consider factors such as:
- Your target customers
- Accessibility with keen interest in traffic, parking and lighting
- Location of your competitors
- Safety of the building where your business is located
- Any Incentive programs available for business start-ups in the area
- History, receptiveness and community flavor to a new business.
#6. Not Wanting to Get Your Hands Dirty
Most people would prefer to have ideas only, rather than getting them to reality. Unfortunately, there’s not much of a market for ideas only. No one trusts an idea until you embody it into a product and use it to grow a user base. If you plan to start a business and attract customers, you will probably have to get up from your computer and find some. It’s quite an unpleasant task, but if you can manage to do it you have a greater chance of succeeding.
If you are determined to start a start-up, you have to face the fact that you have to get your hands dirty and work.
#7. Wrong Spending Habits
Yes, you have all the capital you need to start the business but this does not mean you spend it carelessly without a proper plan in place especially when you are starting out. Get this, there is a thin line between early investment to get your business on its feet and to overspend too soon. Remember crossing the line will cost you more than you can account for.
#8. Spending Too Much
It’s quite a task to distinguish between spending too much from raising too little. In case you run out of your money, you could say either of the above is the cause. The only way to decide what the cause is will be by comparison with other start-ups. For example, if you raise three million and ran out of money, you probably spent too much. Well, the best solution for this is to draw out a financial plan of the important costs you need and leave out the unnecessary ones. Such may include the cost of opening stock, hiring, production, items and adverting.
#9. Neglecting your Strengths and Weaknesses
Everyone has their strengths and weaknesses. Unfortunately, our strengths and weaknesses don’t always fit well with the business model we want to use, leading to bad results. For example if you are not friendly or an outgoing type of a person with good people skills, then keep off retail. It doesn’t matter how many years you have dreamed of opening that bookstore; it’s not for you.
That doesn’t mean you can’t start such a business yourself. However, for it to succeed, you need to be aware that working behind the counter only is not such a ideal thing for you. You will need to hire staff right away.
Overexpansion in most cases happens when the business owners confuse success with how fast they can expand their business. A quick focus on the slow and steady growth is optimum. Many bankrupt business have been caused by rapidly expanding companies. At the same time, you don’t want to halt the growth of the business. Once you have established a solid customer base and a good cash flow, it’s time to allow success to help you set the right measured pace.
If the expansion is warranted after a careful review, research and analysis, find out what you need to add for your business to grow. Then with the people and system, focus on the growth of your business.
All in all, getting your business off the ground is the most important thing, but it comes with its challenges. Success is knowing how to avoid some of the mistakes given above and launch it properly. Start yours now!
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