The United States depends on small businesses to keep its economy chugging along. According to the 2016 U.S. Census, businesses with fewer than 20 employees make up 89 percent of all employer firms in America.
However, that doesn’t mean all small businesses are chugging along at the same pace. In fact, 50 percent of small businesses fail by their fifth year.
Here are the four most common mistakes that small-business owners make:
No business plan
A business plan is a written description of a business’s goals and structure. Many lenders ask to see a business plan before agreeing to invest money. Therefore, a company that may suddenly need to get a loan could be unable to do so.
A business plan is a vital tool for the owner, too. It forces the owner to think seriously about all aspects of the enterprise. A standard plan contains a company description, market analysis, marketing plan, management and staff plan, startup budget, and five-year financial projection.
For the owner to create a business plan, he or she must know what the business is, do market research, and crunch some financial numbers about the present and the future. In other words, the plan serves as a means of determining the criteria for success.
If the business veers from the plan, the owner may need to revisit business practices. If no plan exists, then the business has nothing to veer to or from, and it may end up in the ditch.
Failure to delegate
Understandably, many small-business owners see their enterprises as an extension of themselves. As a result, these owners want to be everything: purchaser, stock person, HR manager, marketer, bookkeeper and salesperson. Such owners may find themselves becoming burned out and blundering through tasks for which they have no time or talent.
Instead, entrepreneurs should know when to pass the baton to a trusted employee or experienced consultant or contractor. They should hire people with the expertise they lack and focus on the tasks they do well.
The key to delegation is finding the right people. Being picky is a virtue when it comes to selecting staff and contractors.
Not enough money
As the saying goes, sometimes you need money to make money. A young business has to pay bills and meet payroll well before it begins to turn a profit.
Furthermore, even when a company has been able to operate in the black, bad things can happen. An economic downturn, an important customer who suddenly stops paying their bill, or a string of bad luck can all make income, and thus the business, come to a screeching halt.
To avoid undercapitalization, an owner should make a business plan and use that plan to determine how much money the business needs to operate for five years.
The owner should ensure that there is a positive account balance before asking for money. In addition, he or she needs to keep track of income and expenses and have financial forecasts in place to help gauge when the cash is drying up.
No marketing
Granted, marketing costs money. However, if a business wants to attract customers, the business has to tell customers it exists.
A marketing plan that relies entirely on foot traffic is not a real marketing plan. Instead, an owner needs to do research to find out where the target customers are and what they do, then seek them out instead of waiting for them to saunter by.
Social media sites such as Facebook and Instagram allow an owner to communicate directly with the people who may buy a business’s goods and services.
Furthermore, e-commerce is just as important as physical storefronts. An owner should create a website that informs and engages prospective customers while also offering products and services.
The bottom line
Many people dream about running their own business, but few are brave enough to take the plunge. Those who do, however, need to do more than close their eyes and jump in the pool. Small-business owners should plan ahead, avoid these common mistakes and react quickly to signs of potential trouble.
