If you think you have a great idea for a company and have a strong desire to work for yourself, you may be ready to start taking the next steps to starting your business. However, it is important to be very prepared because, while there are many advantages to running your own business, there are even more risks.
According to the SBA, over 50% of small businesses fail in their first five years of operation. In a few cases, the business owners did everything right and were just plain unlucky. In most cases, however, their failure was due to common mistakes that new business owners often make. New entrepreneurs often lack the necessary experience, don’t have enough capital, start their business at a bad time or generally fail to plan everything thoroughly.
The reality is you need to be financially, personally and professionally ready to start a business. Follow this guide to avoid some common mistakes and to ensure that you are in the best position to start a small business:
1. Know your purpose
Why do you want to start a business? You need to be able to supplement your new business with passion: the desire to “make money” or have a “three-day workweek” just won’t cut it in the end. Make sure that what you’re trying to achieve holds some meaning, whether it’s helping a certain group of people, making customers happy, solving a market need, pursuing a personal interest, helping the community or simply creating interesting, beautiful or great products. Your passion for your business will keep you afloat when times are tough and when the work seems too difficult.
2. Be aware of trends in the industry
Complete a market analysis to see if it is a good time for you to hit the marketplace. This can also help raise awareness of your competition, help you understand your target audience and get you prepared for any trouble you may encounter in the market. Consider using market surveys or research focus groups to get feedback on your product or service. Is it something people are interested in? Is there too much competition? Is the market large enough for you to compete, or is it oversaturated with other options? You may have a great idea, but it just may not be something that is needed in the marketplace.
3. Have a solid business plan that includes how you will be funded and marketed
These logistics are very important; many small businesses fail because they don’t have sufficient capital to continue operating. You need to have a financial “security blanket” to take care of all the initial expenses. Consider your personal expenses too, and be prepared for a period of at least a year or two when you may not earn any income. If you really want your business to succeed, you will most likely need to reinvest your initial revenue into the business itself rather than paying yourself a salary.
Before you begin, evaluate what resources you currently have to fund your business, and make projections on how long it will take to make money. How will you prepare for inventory management? Will you need to hire employees and follow proper HR procedures? What other costs are required expenses for your business to operate?
If you need more capital than you have, consider your potential sources of capital. Will you take out business loans? Or will you seek Angel or Venture capital investment? If you don’t get investments, how long will you last? Prepare for all of the details with a business plan before moving forward so you won’t be caught off-guard.
4. Make sure you have the cooperation and approval of your close family and/or friends
Owning and operating a small business will be a huge lifestyle change and very time-consuming. If your spouse, children or other close family members are not comfortable with the decision, you may want to reconsider. Also, think about your current commitments, such as fitness, social life, creative pursuits, volunteering and leisure activities. Are you willing to cut things out to make time for your new business?
5. Don’t forget to evaluate your health
If you are not healthy—either mentally or physically—then starting a business is not a wise change for your life. Starting a business will be strenuous, so you cannot have any other big stressors in your life. If you do, you may want to remedy those issues and seek medical advice before you continue with your decision.
6. You need a good, large business network
Having an “active network” means having people to turn to for advice, recommendations and resources. You can also decide who will work with you as a partner, co-founder or as part of a management team. A business partner allows you to share the stresses of entrepreneurship with another person and to strengthen your team with a wider breadth of skills. It’s a good idea to establish your early, high-level employees before launching, so you (and potential investors) know that you have a solid foundation for growth. You may consider hiring a business consultant, or you may choose to take some basic training courses in business, leadership and/or management.
7. Make sure you know all of the legal and tax paperwork that will need to be prepared and filed
If you find that you are ready to start a business, be sure to consult “Starting a Business: The Great Big Checklist of Everything” to ensure you start off on the right (and legal) foot.
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