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10 Common Mistakes to Avoid When Setting Up a New Business
10 Common Mistakes to Avoid When Setting Up a New Business
10 Common Mistakes to Avoid When Setting Up a New Business
1. Misjudging the market Just because you think you need something, don't assume the public will want it, need it or be willing to pay for it. Ask as many people as you can for their feedback. An honest reality check at this point can save you a lot of time and grief later on.
2. Not having a business plan A business plan, which you will need if you want to obtain outside capital, forces you to think about your goals for the future of your company. The plan must answer the question: "What makes you think you can do this better than present competition?"
3. Miscalculating the capital required In almost all start-up situations, whatever you think you will need won't be enough. Many people believe that once they start the business it will provide for their needs. But with most small business, you don't take money out. You are constantly putting money back into it, especially early on. And if your needs exceed your cash or available credit, you'll mostly likely fail.
4. Underestimating the time a business requires Starting a business and running it, particularly in the early stages, take a huge amount of time and effort. If it's important to you to spend the bulk of your time with family and friends or on hobbies, founding a business is probably not the best thing for you.
5. Not having the requisite skills If you're going to start or run a small business, you need to know a little bit about everything involved. Even if you have the capital to hire an accountant, a sales manager or a production manager, you'd better know enough about each of their jobs to determine how they're performing. You can't assume that people know what they're doing or that their interests are the same as yours.
6. Setting your price too low or too high Don't assume you can give away the store as a way of attracting new customers. What usually happens is that you set expectations in the minds of your customers, and you can never raise your prices to cover your costs. 'Cheap' is negative. It implies poor quality and turns people off. And if the price is too high and people don't perceive value, they won't buy.
7. Choosing the wrong partner(s) Before entering a partnership, ask yourself: "How well do I really know the person I'm considering?" Your partner must be able to carry her or his share of the work and also agree with you on vital business issues. Spend much time playing what-if and considering worst-case scenarios. And be sure you have a partnership agreement signed by all parties and a written bail-out plan spelling out details: "What happens if a partner wants out? Who gets paid what and how?"
8. Not considering legal aspects After you determine the steps necessary to start the business, you employ competent legal counsel to ensure continuing compliance with laws and regulations, especially those that deal with employment and liability issues. Ask for recommendations from people you know who have employed lawyers for business issues.
9. Not understanding employee issues Do you have a plan for hiring, paying and supervising workers? Have you set up personnel policies or job descriptions? Have you thought about fringe benefits, bonus plans, profit sharing and taxes? You need to be aware that you're assuming total responsibility for the financial well-being of your employees.
10. Choosing the wrong location Moving is expensive, and not just in the obvious ways. Reprinting stationery, getting new phone numbers, rewiring, inconveniencing your employees, updating customers and other contact information - all these things can cost plenty in time and money. You don't want to spend all your initial capital on rent, but when you select your first location, give some thought to future needs.
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