Starting a business often involves venturing into unknown waters; and managing tasks, challenges and problems you may not have had much exposure to in the past. It happens all the time, something as simple as missing a great opportunity to purchase inventory in bulk due to a lack of working capital can come back to haunt a new business. While entrepreneurship inherently involves elements of the unknown, you can improve your chances of success by knowing which common mistakes business owners make.
Here are four mistakes to avoid when starting a business:
Choosing the wrong business structure: As business expert Nellie Akalp explains, one of the biggest mistakes to avoid when starting a business is taking a guess on the best way to structure it. Whether you opt to make your business a sole proprietorship, limited liability corporation, partnership or S corporation, the structure you choose determines how you’ll approach taxes, and plays a significant role in the amount of personal risk you assume as the business owner. The correct business structure is especially critical if you’ll seek funding from investors, plan to grow the business exponentially, or intend to sell the business one day. Consult with a qualified lawyer or similarly trained business professional who can help you determine the best structure based on your business goals.
Misunderstanding your tax responsibilities: When you own a business, taxes are part of your daily life. Not only must you pay estimated self-employment taxes four times a year, you may have additional tax responsibilities related to Social Security and workers’ compensation if you have employees on payroll. Select an accountant to help you understand what tax obligations your business will have to manage as soon as you open your doors, so you can establish good financial habits that keep your business compliant with tax laws.
Investing in systems that don’t scale: Common startup mistakes often stem from the fact that many business owners are forced to overhaul critical processes like invoicing, bookkeeping, shipping, processing customer payment, issuing purchase orders and managing inventory once business booms, because they didn’t initially invest in systems that could scale for growth. Before you invest in business equipment, processes and even physical space, consider whether it will support the business you hope to run in five years, along with the one you have today.
Cutting too many corners to save costs: While it can be wise to operate with a “lean” mindset when you’re business is new, the adage “you have to spend money to make money” has practical application for business owners when it comes to meeting (and exceeding) the standards other businesses have set in your industry. If the competitors in your space have websites that feature high-end product photography, for example, you may need to hire a photographer who can make your online presence equally impressive (despite that your smartphone’s camera is a cheaper strategy). Spend wisely, but don’t make the common startup mistake of being so lean that your brand can’t compete for customer attention.
Mistakes happen, common and uncommon. Costs are underestimated, money gets invested in the wrong programs or people, or maybe the wrong corner gets cut. The steps above should help you to avoid some of these common mistakes, and don’t worry, there are even solutions for the uncommon. You don’t have to look very far to find a solution to help improve your business’ financial stability. Investing in some working capital can go a long way towards keeping a small business owner from learning from his mistakes the hard way. Check out your options over at Lendr and see if there is a right fit for you!