Starting a small business comes with its risks. Business failure statistics actually show that about 96% of small businesses that enter the marketplace survive for one full year, 85% survive for 3 years, and 70% survive for five years. Often, it takes an entrepreneur a few business failures before they find the business that makes it.
With proper planning and risk management, it’s not difficult to improve the likelihood your business will thrive for 5 years and beyond. Today we’re sharing some common small business pitfalls that entrepreneurs encounter as well as some practical ways to avoid them!
Pitfall #1—Not having a business plan
Whether you started your business pursuing a passion, using a skill, or just because you wanted to do something on your own, it’s important to remember that all businesses can benefit from a solid business strategy. A thoughtful business plan or strategy is essential to your profitability, growth, and to help avoid situations that could bankrupt your business.
Define your revenue streams and assess their reliability. If this is not something you can do on your own, hire an accountant or finance professional to help! The key is to remember to build your business plan to be flexible and SIMPLE. Your business plan doesn’t need to start as a 30 page PDF with a table of contents and an appendix. In fact, try even keeping your business plan to one page. This will actually help you trim the fat and focus your plan on the core of your business’ purpose.
Pitfall #2—Unrealistic capital requirements
Typically when you start any business, you will not see a penny of profit for the first 6 months. Without having a solid understanding of how much money you need to keep your business running before you see profits, your business won’t survive. Along with your business plan, make sure you spend the time creating a detailed budget, including every detail, expense, payout, as well as making sure you’re covered for taxes. Once this budget has been defined, make sure you add another 10% on top of that for emergency wiggle room. This will give you a more realistic idea of what you need to launch your business.
Pitfall #3—Forgetting about marketing
Marketing is often overlooked when small businesses are created. But especially in the digital landscape that we live in today, your customer has more choice than ever and you can bet that your competitors are already fighting for their attention before your business has even begun. Having a solid marketing strategy with deliberate and thoughtful channels chosen will give you a leg up when it comes to fighting for a piece of the market.
Find out where your target audience browses for information. Draw up case studies and go out there and talk to people. The more information and data you’re able to gather the better. From there, establish KPIs (key performance indicators) for your marketing plan so that you can measure and continue to adjust your plan as your business grows.
Pitfall #3—Lazy Financial Record-Keeping
Accounting can seem super daunting to a small business owner with no finance or accounting background but it’s something you just can’t avoid! Up-to-date financial records are critical not only to reflect on your business’s financial wellbeing but can also aid you in your decision making and give your investors or banks a better idea of whether or not your business is worth giving more capital to.
Thankfully a lot has changed since the days where you had to buy Quickbooks software to download onto your computer. With modern technologies like AI, machine learning, and automation, there are accounting solutions that pretty much do the work for you!
With TrulySmall™ Accounting, a tool purpose-built for small business owners like you, all you have to do is connect your bank account to tap into all of the smart features it provides. It’ll automatically pull in your business transactions so that all that’s left to do is review and accept the categorizations to post them to your general ledger. And then voila! 2 more clicks and you can see any financial report you need, all up-to-date.
Pitfall #4—Growing too quickly
Although this may not SEEM like a bad problem to have, rapid over-expansion in the early stages of a small business actually brings on a new set of risks. Here’s another situation where having up-to-date financial records would be extremely beneficial because your records will tell you how fast your demand is growing, how quickly your inventory is depleting, and whether your cash flow is keeping up!
If your capital and inventory can’t keep up with the demand, you’ll quickly lose credibility with your clients which can seriously hinder growth in the future.
Small business pitfalls don’t HAVE to drag your business down. We hope you’re able to neutralize some of the risks of running a small business with the tips we shared in this article! And whatever you do, make sure you’re keeping your financial records accurate and up-to-date!