The benefits to starting your own business are certainly attractive, but research by the Telegraph newspaper found that a third of small businesses fail within the first year. Time and time again, new business owners fall prey to the same common pitfalls. It’s important to be aware of the money traps that small businesses frequently face so that you can avoid them and set your business up for lasting success.
1. A Lack of Planning
Former US President Dwight D. Eisenhower famously said “plans are worthless, but planning is everything.”
Whilst plans alone won’t make you money, it’s essential to create a careful and realistic plan for your business; without one, your chances of success are very slim.
Running a business is a journey and therefore you need a map to guide you. Starting a business is exciting and it’s tempting to jump straight in, but you have to take the time to plan first. An ad hoc approach very rarely works.
First, you must define your company and get clear on your ideal client. You also need to create a realistic business budget and set short, medium and long term goals to pace and motivate you.
2. Neglecting Marketing
If you don’t focus on marketing now, you’ll find yourself wondering why you don’t have any customers later. You need to market your business consistently right from the very beginning and create an engaging brand that appeals directly to your ideal customer. Your business might offer a fantastic product or service, but you’ll struggle to make money if no-one even knows who you are.
Furthermore, you need to get your marketing right. This means identifying your ideal client or customer and curating a careful strategy that will speak directly to them.
There are three main factors you need to get right:
- Audience – you need to speak to the right group of people.
- Offer – you need to create an appealing offer for this audience.
- Message – you need to send the right message about your offer to your audience.
There’s a lot more to marketing than publishing a few Facebook posts or taking out an advert in the local newspaper. You need to put time, effort and careful thought into your strategy or you’re in danger of missing the mark.
3. Cost-Based Hiring
Ever heard the phrase “you get what you pay for”?
It’s stuck around all these years because it’s true.
Yes, hiring inexperienced, under-qualified employees is an easy way to save money in the short-term but in the long run, bad hires can seriously drain your bank account. You’ll end up forking out significantly more than expected in training or re-hiring, and run the risk of damaging your business’ hard-earned reputation.
4. Overpaying for Office Space
Rent is one of the most significant business costs you’ll have to fork out for, so consider whether you really need to be paying as much as you currently do.
Although it’s important to focus on long-term goals in business, it’s more prudent to think about the short-term when renting an office space. If you’re currently paying for unoccupied desk space and have no immediate plans to hire new team members, then you’re wasting money.
One great way to cut down on office costs is to encourage flexible working and allow employees to work from home at least some of the time. That way, you might have a team of 50 but only require an office capacity of 25 desks. Permitting staff to work remotely also helps to cut down on heating and electricity bills.
5. Bad Bookkeeping
Poor bookkeeping is very bad news for your business. Inaccurate financial records generate huge losses in terms of time, money and productivity – not to mention sleep. Bad bookkeeping leaves you liable to make mistakes on your tax return and means you’ll probably fare poorly in the face of an audit.
Keeping excellent financial records is one of the most effective ways to protect your business against disaster and ensure that your organisation stays financially healthy for years to come. It’s never too soon to invest in bookkeeping software or better yet, the services of a professional.
Summary
Whilst it’s true that many businesses do fail in the first year, this is largely due to a lack of planning and preparation. If you’re ready to put the above common-sense steps into place and invest in the financial health of your business, then you’re better positioned than many entrepreneurs. Avoiding these money traps will not only protect your business against financial disaster, but allow you to accelerate growth and reap the rewards of entrepreneurship all the sooner.
