There are a few key pitfalls that cause most businesses to fail within their first year. Even among those who survive this crucial time, few survive into their third-year. Sadly, most of the problems that cause businesses to close down could have been solved before they got out of hand. It’s important to familiarize yourself with these common mistakes so that your startup can navigate them effectively and thrive.
1. Having A “Build-It-And-They’ll-Come” Mindset
No matter how certain you are of your business idea, you need to do a proper case study before you launch. This involves market research into the current consumer trends, projecting your profit and loss probabilities, and analysing start-up costs. Depending on the nature of your business, you will need to budget for salaries, utilities, marketing, premises or shared office space, and other essentials. From this, you can deduce how viable your idea is and what your best way forward will be.
2. Taking A DIY Approach To HR
Maybe you’re running a sole proprietorship. Maybe you downloaded some HR templates and processes and you believe you’ll just adapt them to suit your brand. Unfortunately, this places your businesses at risk. Don’t DIY your HR when you’re launching. If your budget is tight, opt for virtual HR assistance on an as-needed basis. Get help with defining your brand’s core values and implementing processes, structures, codes of conduct, and disciplinary guidelines that are compliant and align with your values. Once it’s established, you can DIY the management by investing in the best workforce management software.
3. Keeping A Joint Business/Personal Bank Account
You want to separate your business bank account from your personal account. If you’re a sole proprietor, you’re at risk of personal losses should the business ever need to liquidate. This means that the bank (or any lender) can actually seize your personal assets or your personal funds in order to settle your business debts. By having a separate business and personal account, there is a legal line that protects your personal assets.
4. Winging Your Processes
Don’t muddle your way through your workflow and project management. Chaos and confusion remove accountability from team members and leave clients feeling flustered, confused, and poorly managed. Instead, utilize some of the great software and applications that simplify these functions. HubSpot enables you to manage sales pipelines effectively while Slack keeps your team members in contact. Asana and Monday.com simplify project management and ensure each team member is accountable for their tasks.
5. Failing To Create A Cash Flow Structure
The vast majority of businesses fail because of poor cash flow management. These businesses are often getting adequate income, but they’re failing to distribute the funds in a way that will promote growth. Top accountants recommend having at least five bank accounts.
The first one is the one you receive payments into. The second is for your profit. The third is your tax account (this money doesn’t belong to you, set it aside and don’t touch it). From your fourth account, you take care of essential operational expenses, like salaries. The final account is for non-essential expenses. If you run short, cut funding from the non-essential expenses account. This ensures you are always profiting.
Please note: It is imperative that you meet with an accountant before you implement a new financial strategy.
The consumer market has become far more complicated than it was twenty years ago, so entrepreneurs need to perform in-depth research in order to launch successfully. Follow the tips above, and you’ll be off to a good start.