Starting a business is exciting. You’ve decided to move forward with your dreams and embark on something that can possibly set you up for future success – professionally and financially. One of the biggest myths a lot of people realize down the road is that businesses are hard work. It sounds glamorous and you see all the success stories, but how did they get there?
All too often, business owners make tons of mistakes that, when looking back, wish they had done things differently. That’s perfectly normal. If you’re just getting started, having a resource to give you some guidance on things to avoid comes in handy, right?
These mistakes are some of the biggest new business owners make, so here’s a quick “heads up” to steer you in the right direction and hopefully out of harm’s way.
Not doing research
While it may seem crazy that new business owners will start a new venture, they know nothing about, it happens every day. It’s important to research the area you are interested in – the market, competition, and audience all play a huge role in your success.
You should know who and what you are dealing with before sticking your toe into the deep water. Lack of knowledge is one of the biggest reasons why businesses fail. For instance, you’ve decided to start making subscription boxes for beauty products. While this seems like a good idea, you need to know how many other subscription boxes do the same thing and how well they are received in the market.
You also need to research the costs of creating a subscription box, including packaging, curating the products, warehouse storage or fulfillment companies, postage, and more. Until you have a clear picture of all the elements involved, it’s not wise to make a move. You could find yourself with a bunch of inventories, beautiful empty boxes, and no customers.
Not having a plan
If you fail to plan, you plan to fail. Have you ever heard that? Well, it’s true. You must put a plan in place to realize the vision, understand the mission, and move forward with your goals. What problem are you solving? Who are you helping? How will you move into action if you can’t answer those questions?
If you haven’t set any goals and objectives, how will you know what to do and when? Your plan helps with consistency and can be revised how you see fit. The first goal is to make one. This plan should have your goals and objectives, but also the structure of how the business will be managed.
Will you need funding? How will you acquire it? Will you bootstrap your business? How much personal financial investment will you have to make? How much are you willing to make? What steps will you take to move things forward? What about marketing? How will you get the word out about your business? All of these are considerations that should be thought about at the very beginning, even if you aren’t at that stage yet. Without a plan, you could make some choices that set you back financially, causing you to go back to the drawing board.
Forming the wrong business entity
This one is HUGE. Once you start getting things in position, it’s important to figure out what business entity works best. Many small startups start with sole proprietorship, but that isn’t smart. One of the reasons why is because you’re leaving yourself out there in the open with personal liability for everything that happens with your business. That means a creditor can go after your business and your personal assets too. If someone wants to sue, the same thing applies.
While there are several business structures, most businesses form a limited liability company or LLC to circumvent those issues, as it provides a safety net. This is the easiest and most common to set up and maintain. LLCs are built to scale when needed. They can be managed alone or with a team of members. There are many advantages to having an LLC.
LLCs provide limited liability. That means a creditor can go after your business, but your personal assets won’t be touched unless you use your own credit to personally guarantee the debt. You can also avoid certain lawsuits that could leave you financially crippled. At tax time, members get the benefit of passing any profits and losses on your individual tax return, which, most of the time, saves you money.
Not having good records
It’s hard being a business owner. If you’re a one-man operation, you’re responsible for everything. That means you must have some level of organization to keep things going in a positive direction. It’s easy to start co-mingling funds, which is a big no-no.
When it comes to finances, it’s important to keep an accurate record of everything. Not keeping good financial records can result in losing tax credits that you’ve forgotten about, deductions that could reduce your taxes, and more. Additionally, if you’re ever audited by the IRS, you’ll be able to show clear records of your returns and how you got those numbers.
Every business entity has certain records they must keep, in addition to licenses that must be renewed. If you don’t have accurate records, how will you keep track of everything successfully? Do whatever you need to, so you won’t start letting things fall through the cracks.
Not getting a business license
Depending on what state you live in, you may be required to obtain a business license. While there are many at-home businesses, some localities still require a business license to ensure you’re keeping up with the regulations of the city.
Always check to see if you are required to have a business license, because if you do need one and have failed to obtain it, you can be fined for hundreds, if not thousands of dollars. From the moment you are legally registered as a company, figuring out whether you need a license to do business is key.
Don’t put yourself in the position of getting red-flagged by the county office. The hassle that follows isn’t worth it.
Not protecting your intellectual property
There used to be a time when people would just start a business and use a business name they liked. Those days are long gone. With so many businesses cropping up every day, it’s important to make sound decisions as it relates to your intellectual property or IP.
What is intellectual property? These are assets that help define your business and who you are. If you’re really serious about your business and are in it for the long haul, you should consider trademarking your name, slogan, logo, and other identifiers that distinguish you in the market with the United States Patent and Trademark Office.
There are fees involved for trademarking and you must protect your marks, but when you own those assets, people trying to use them or steal them can be taken to court and fined. In this fluid business environment, you must do your due diligence on your name and other assets. If you feel that your brand is worth it, you’ll consider trademarking. Even if you haven’t gotten started, filing an intent to use is better than nothing at all.
Failing to have agreements in place
One of the most important things you can do as a business owner is having your paperwork in place. That means when working or partnering with others, you must have contracts in place. While verbal contracts may stand up in court if proven, the hassle you will go through in trying to prove someone defrauded you based on a verbal agreement can be challenging.
Consider this: a client calls you to do some work and tells you to get started. You don’t have a contract in place. You’ve done half the work, which equates to a few thousand dollars, and don’t hear from the client anymore. When you call to collect a payment, they tell you they have changed their mind.
While you are well within your rights to file a lawsuit, the entire situation could have been avoided with a contract in place and a deposit given. It’s okay to be nice, but stand firm in your policies because no one wants to be left holding an empty bag.
Starting a business from the ground up will take you through many challenges, but these tips should help you look at things from a different perspective. Get assistance when you need it, even if it’s for a few hours, consult with professionals that can keep you liability-free, like an attorney or accountant, and understand nothing happens overnight.
You should always strive to work smarter utilizing the knowledge you learn along the way. This helps avoid these common errors and puts you in a better position for continued success.
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