So you’ve decided to take the leap and start a business. As you’ve heard before, starting a business comes with many challenges. As a matter of fact, you’ve heard it over and over again. More than half of new businesses fail during the first year. According to the Small Business Administration, only 25 percent of small businesses make it to 15 years and beyond. This doesn’t have to be the case. And you do not have to be one of those businesses. So let’s dig into the common mistakes that businesses make so that you can avoid them and succeed.
Create a Business Plan
The lack of a business plan will surely set your business on a collision course for failure. It is imperative that a business has a sound business plan. The purpose of a business plan is to set specific objectives and to provide a road map for the business. According to successful entrepreneur and star of the hit television show Shark Tank, Daymond John said a business plan is the” flight path” of your company. It creates the premise to prove the viability of the business. More specifically, if you plan on seeking funding for your business, potential investors and financial institutions will require a business plan. So here are some key elements that must be included in the business plan:
Executive Summary – The executive summary is the first chance you have to attract your investor’s eye. It should include the organization’s information, including the management team. Specific information that should also be included in the executive summary include
· The Company Mission Statement
· Company Information
· Growth Plan
· Products and Services
· Financial Information
· Summary of Future Plans
Business Section – This section of the business plan outlines the business and includes a company description. This information should include an introduction to the industry and the competition. It would be wise to include real data to substantiate the need for the business. This is the starting point where you put pen to paper to differentiate your business from that of your competition.
Market Analysis – This section is important for your business for planning purposes and to show the viability of your business. The market analysis section of your business plan should include a more detailed summary of the industry you are entering into. This is important to show the forecast of the industry, including trends, seasonal highs and lows, your target audience, and how can you reach them. All five parts should be included in this section of the business plan. It is important to include the industry information because before you can strategize and create a marketing plan, you must understand the market.
Financing Section – This section of the business plan is crucial to obtaining any type of funding for your business. There are three specific items that the financing section should include – the amount of funds you have (if any), the amount of funds you need to borrow, and how you are going to repay the funding. This should include relevant worksheets that include income statements, projected expenses, and cash flow predictions. Remember this is the section where you must sell the potential investors on your business. Many businesses have failed and have not received funding because they did not include key financial data in their business plans.
So the first mistake that you should avoid is ignoring the importance of creating and maintaining a business plan. Does this mean that you have to create a 50 page document initially? No, it doesn’t. You can start with a premise and build on it as you go. However, if you plan on seeking, the plan must be solid.
Define a Niche
This is a common mistake that many businesses make. By doing this, they do not differentiate themselves. Standing out is important, so stick out like a sore thumb! By defining or establishing your niche, you can service a target that is being underserved.
Some reasons why entrepreneurs fight against this notion are they don’t want to limit their services and possible earning potential. But what ends up happening is that they spread themselves thin. For those businesses that do not define their niche, they end up sounding too generic because they try to encompass everything in their service and product offerings. Also, because their services are too encompassing, the customer can become confused. According to an article on inc.com, developing your niche makes you the expert. This will allow your business to have more effective marketing, which will lead to increased sales and revenue.
Ensure Capital or Cash Flow
Avoiding this mistake is a no-brainer. We are taught this in Business 101. In order for a business to exist, it must have cash flow. We’ve all heard the saying “Cash is king.” Cash outflow is what a business uses to cover the cost of doing business such as purchasing materials, transportation, labor, and technology. And cash flow is controlled by this aspect. Your business can only have a positive cash flow when the business is receiving more cash in than is going out. By showing that your business has positive cash flow, you are positioning your business to have buying power. And, in turn, if the need arises, it will put you in a better position to obtain funding for your company. So here are a few tips to help prevent you from making that mistake:
1. Organize your bookkeeping
2. Stay on top of bad customer debt
3. Align your customer’s credit terms with the credit terms of your suppliers and vendors
4. Stay on top of profit loss. Keep cash reserves
5. Establish a cash flow forecasting system so that you will know when your cash flow takes a dip
Know your competition
The last mistake that we will discuss is not knowing your competition. As a business owner, you must understand your competition. This includes who they are and what they sell. This is aligned with defining your niche. You cannot bring a business to the forefront without understanding all the players in the arena. This is crucial. This premise begins with the notion that your competition does exist. Businesses do not exist without competition. Businesses have made the mistake of thinking that they are the only player in the game or not studying their competition. This makes you arrogant as a business owner. So the tip here is do not be afraid to learn about your competition. Here are a few tips to conduct benchmarking:
· Obtain your competitors’ brochures and/or marketing materials.
· Obtain a price list of products or services that the competition offers.
· Meet your competition. It will not hurt you to be friendly because you may have to collaborate at some point.
And then evaluate what you have learned from them. Use this to analyze your business and its offerings. This can only make your business stronger.
Yes, it’s true there are businesses that do not survive. However, the good news is that there are millions of businesses that grow and become successful. Whether you are a single owner or part of a team, if you make informed decisions, you can have a successful business. What we can learn from this discussion is that you must plan and implement. Plan every aspect of every business, analyze the decisions you make, and implement the good ones. In order to grow, you must learn from your mistakes and push forward toward the path to successful entrepreneurship.