Having worked with entrepreneurs as a coach and lender, guest author Bruce Tannas has seen several common mistakes made by entrepreneurs who are starting a new business. Some of these mistakes can be costly and ultimately lead to business failure. As you consider starting your business, learn from these 6 common mistakes so that you can avoid them in your startup.
1. Rushing into a new venture
You may have heard of the expression “only fools rush in” which definitely applies to starting a new business. While it is good to be excited about your business idea, you need to temper that excitement with serious research and planning.
Before you decide to proceed further with your business idea, you need to understand if there is a market for your product or service. You also need to understand the competitive landscape (either direct or indirect competition). Do your research carefully and avoid confirmation bias in your decision to move forward or not with your business idea.
Benjamin Franklin once said, “If you fail to plan then you are planning to fail”. Yet there are many would-be entrepreneurs that skip the business planning phase or only put a cursory effort into making a plan. The evidence shows that having a business plan increases your chance of success and businesses with a plan tend to grow faster. So, take the time to write a well-thought-out business plan. A good business plan will cover the major areas of the business and help you pre-think all the aspects of your business. Quick tip: Business Link has a free Business Plan Builder that you can use!
2. Overestimating the businesses revenue projections
Many would-be entrepreneurs overestimate their initial revenues for their startup business. I’ve seen revenue projections by new entrepreneurs that go from no revenue to significant revenues in the span of a few months.
Generally, it takes more time for revenues to grow than you might think. This is because it takes time for potential customers to get to know a new business and want to buy from it. As you develop your revenue projections make sure that you avoid being overly optimistic and try to be as realistic as possible.
3. Underestimating startup costs
Most new entrepreneurs do a good job of finding the cost on capital items (e.g., equipment) but they tend to underestimate costs for licensing, insurance, renovations, and professional costs. Estimating your startup costs will give you a good idea of how much money you’ll be spending before you even make your first sale.
Make sure you carefully research your initial startup costs and operational costs. Be sure to include a contingency amount in your projections as there may be costs that you haven’t thought of or come up with unexpectantly.
4. Not having enough startup capital
Not having enough startup capital can be a fatal mistake for new businesses. I’ve seen businesses open and operate for a few months only to run out of cash and have to close. I’ve also seen other entrepreneurs finance their business solely with personal funds and credit cards which have left them desperate for affordable financing after the business starts operating.
You need to ensure you have enough startup capital for capital items, renovations, operations, and contingencies. A properly financed business usually needs financing from multiple sources. Financing a business starts with you and any partners that are founding the business. Almost no businesses are funded without founder investment (count on the founders needing to invest at least 20% of the total amount needed). From there you could also consider getting investments from friends and family to help shore up your initial investment. Then look to patient lenders such as BDC, Community Futures, and others to help with startup funding. Finally, banks can help by lending cash for renovations (through the Canada Small Business Financing Program) and operating lines of credit to round out your business financing package.
5. Allocating your time to the wrong things
A new business owner’s time is precious. There is always much to do, including finding and helping customers, marketing, accounting, etc. The temptation is to do it all by yourself to save costs. The problem with that is that you may be doing the wrong things and either not doing them well or forgoing revenue in order to take care of these things.
Over time, you’ll need to do what you’re good at and hire for the rest. At first, you may need to take care of some of the responsibilities that you aren’t good at. Try to get these outsourced (or hire someone) as soon as you can afford to so you can concentrate on the business’ core functions.
6. Not asking for help
Contrary to the image of the lone entrepreneur, successful entrepreneurs build a network of people that can help them with their business. Take the time to build your support network with people that can mentor you (such as a retired businessperson) as well as professionals such as an accountant and lawyer. Don’t be afraid to ask for help as you build your business. There are agencies out there, such as Business Link, that are more than willing to help you along the way.
About the author: Bruce Tannas
Bruce Tannas is CEO of Luna Media Inc. and Founder of Connect4Commerce, an online marketplace to help small business owners buy, sell, grow and learn. Bruce is an entrepreneur with 30 years of experience in business and economic development.
