3 Big Mistakes Small Businesses Often Make


Business success is never easy. It’s especially difficult for a young company. While luck certainly plays a part – having the right product at the right price at the right time – success is often a result of setting clear goals, creating realistic plans, testing the marketplace, and reviewing what worked and what didn’t work as expected. In the final analysis, then, business success is about getting things right.

Businesses that develop an effective process will prosper, but sometimes, they run out of time or money to learn from their mistakes.

Here are 3 common mistakes new businesses make:

Mistake #1: Inexperience with Raising Capital or Managing Cash Flow

A company needs a constant circulation of money to stay in business. Money can be said to be the life-blood of a business. Before a business can expect to receive a steady stream of revenue, it has to consider the cost of business. These costs range from overheads to unexpected expenses.

Insufficient Starting Capital

In many instances, banks, lenders, or the SBA will not offer 100% financing. If they do offer financing at all, the business owner may still be required to invest their own funds, have a great credit score, and show substantial evidence of a predictable way to pay the borrowed money back.

Due to these stringent lending conditions, many businesses do not start out with adequate funding, but only with a shoestring budget. So, since a new business may not be able to attract enough financing from lenders, some or all of the money to start the business has to come from the business owner’s personal savings. However, starting a business with insufficient capital is rather like an anemic runner planning a long-distance running event: the chances of success are slim from the beginning. In fact, all other factors pale in comparison to capital: the brilliance of the business idea, the talent of the team, or the efficiency of the business process. Without enough money, it can be hard to lubricate the wheels of industry.

Poor Money Management

Even if a business starts out with more than enough money to cope with any setbacks and build economic momentum, it can still go under if the cash flow is not properly managed. Essentially, income should exceed expenses, and vendor bills may need to be settled before customers pay their invoices. So a delicate balance of inflow and outflow has to be maintained, as well as getting the timing correct. Fortunately, robust cash management solutions can alert the business owners to any threats to cash flow early enough to take preventative action.

Mistake #2: An Employee Mindset

When starting a new business, many people come from a background as employees. Working for someone else, they did not see the many aspects of running a business that occurred behind the scenes. Other people figured out the best schedule, assigned the work, and reviewed the results.

As an employee, you merely did what you were told and exercised initiative only when you had permission. While you may pride yourself on your courage and vision in starting a new business, many aspects of an employee mindset may still influence your behavior. For instance, when you run your own business, you are not accustomed to setting your own hours and working without supervision or cooperation. As a result you may not put in 8 hour days or work 5 days a week. Worse still, you may be forced to work more than 40 hours a week and get paid less than a salaried employee who works much less. Moreover, running your own business or running a business with partners makes work-life balance difficult, and your work may even encroach on evenings, weekends, and holidays.

Mistake #3: Poor Management Skills

A business owner needs two management skill sets to do well: strategic planning and interpersonal skills.

Strategic planning skills focus on the ability to set clear goals with clearly defined milestones, plan for the short and long term, implement effective action, and review progress.

Interpersonal skills focus on proper leadership with employees and excellent customer service skills.

While these skills are learnable, it takes experience to do them well. Poor planning processes or tactless leadership is enough to destroy a new business. Poor planning can result in shortsightedness and blundering while tactless leadership can result in unproductive employees and a high employee turnover.

Other Small Business Mistakes

Although these 3 mistakes are some of the most common ones, they are by no means the only mistakes a small business can make. Other mistakes may include:

  • Lack of business knowledge and experience.
  • A poor choice of location.
  • Inefficient business processes.
  • Inability to keep track of inventory (inventory management).
  • Erosion of business credit due to slow bill payment.
  • Loss of reputation due to early mistakes with vendors or customers.
  • Insufficient resources to scale the business when meeting with unexpected growth.
  • Superior competition who give customers more for less.
  • Poor marketing campaigns and a sales team with poor selling skills.

Mistakes Can Be Avoided

While mistakes in young business are par for the course – result of inexperience and poor decisions made under stress — they don’t all have to be your own mistakes. Fortunately many mistakes can be avoided by learning from the experience of others.

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