According to the Bureau of Labor Statistics, 20 percent of small businesses don’t make it past their first year. The data shows that almost two-thirds last for two years, and nearly a half survive the first five years.
Why is this? For the most part, it’s because of missteps that small business owners make. Some of these mistakes happen way before you even start running the business. However, you’ll always make mistakes, but that shouldn’t deter you from chasing your dreams of succeeding. In fact, mistakes are a learning experience and will help you figure out a better strategy.
In this post, we discuss some of the mistakes that lead to the failure of small businesses and how to avoid them.
9 Mistakes Every Small Business Owner Should Avoid
1. Starting without a business plan
One of the most common mistakes small business owners make is jumping right into starting a business without developing a (solid) business plan. A strategic plan gives you a good understanding of the market, logistics, financials, competitors, your ideal customers, and so on.
Plus, a business plan, along with a good credit score, is mandatory to qualify for a business loan. Without establishing proper practices and procedures to act as your guiding principles, the risk of your business descending into chaos is high.
A business plan will ensure your operations, product development, marketing strategies, and all aspects of the business go smoothly.
2. Poor marketing strategy
A marketing plan is another essential plan to consider when starting a business. You want to know how to drive more traffic to your business, how to increase brand awareness, and how to convert leads to sales.
An effective marketing strategy encompasses the full customer journey, which includes, the acquisition of new users, conversion of those users into paying users and keeping them happy. When customers are happy, chances of increasing your sales through repeat customers, word of mouth, referrals, etc., are high.
A well-documented marketing strategy increases your odds of success and lays the foundation for steady, scalable growth.
3. Failing to track expenditures
Another costly mistake small business owners make is failing to monitor their business expenses. When starting out, your expenses will likely outweigh your revenue. However, that doesn’t mean you should be making unnecessary investments. Otherwise, you’ll risk running out of funds.
Wise business owners treat any business purchases with a return-on-investment mindset. For example, if you work from home, you don’t need to hire a full-time team. You can start with hourly workers and define the working hours in a way that is economical for your business.
4. Failure to implement proper price strategy
Slashing prices or underpricing is an effective tactic to woo customers and boost sales. However, not having a proper strategy or timing when it comes to adjusting price can hurt your business.
Keep in mind that if you don’t charge enough, you won’t be able to generate enough revenue to cover your overhead.
Likewise, setting a price that’s too high can push customers away and negatively impact your bottom line. Therefore, make sure you perform thorough market research, including your competitors, to determine the right price strategy.
5. Failing to leverage technology
We live in a modern business world where everything is digitalized, making technology a must-have for any business. For instance, if you run an e-commerce store, investing in e-commerce tools allows your customers to shop online, increasing your reach.
With mobile phone usage on the rise, consumers will prefer a business that offers convenience through online shopping. This will put you ahead of the competition.
Or let’s say you plan to run your business remotely. You’ll want a tool that makes it easy to manage remote work. You can check out Traqq, a time tracking solution that will help you manage your and your team’s time more effectively.
The tool monitors your workers to ensure they clock in and out on time and utilize company time properly. With increased efficiency, you’ll see a boost in productivity and your bottom line.
Likewise, investing in cloud accounting software makes it easier to manage your invoicing and payment processing. As you may already be aware, clients will prefer a company that offers more convenient online payment methods.
6. Not asking for help
As a small business owner, you will have a lot on your plate. From the CEO, the business administrator and the accountant, to being the team leader, and the salesperson.
But here’s the thing. You can’t do everything all by yourself. Apart from risking burnout, you can’t be an expert in all these fields, and this increases your chances of failure. To avoid that, know which roles to delegate. You can either hire a small team or outsource, whichever is affordable.
That way, you’ll have enough time to focus on the most crucial parts of your business that impact success.
7. Mishandling the business finances
One of the primary goals of starting a business is making profits and attaining financial freedom. However, most entrepreneurs don’t know how to properly manage funds, resulting in costly financial errors.
Often, business owners make the mistake of mixing business and personal finances, which often leads to serious financial consequences. When you start treating business finances as your own, you increase exposure to certain risks, like losing valid tax deductions.
Usually, you need to prove that expenses are deductible business costs, which can be difficult to do with your finances mixed up.
Therefore, separate your business and personal finances. Open a bank account specifically for your business and apply for a credit card that allows you to easily track your business expenses.
8. Ignoring the competition
You might think that because your business is unique, with a never-been-seen-before service or approach, you have no competition. You’re wrong.
Competition doesn’t mean having direct competitors. It can mean the availability of alternatives. So, before you get overconfident about your company, ask yourself “Would consumers choose an alternative product or service instead of mine?” Remember, the customer is king, and they have the option of walking away.
Competition is a natural aspect of running a small business, and the fact that you can’t force a customer to use your products or services is a competition by itself. Therefore, in the back of your mind, always assume that you have competition and do everything you can to stay on top.
9. Expanding too quickly
Often, when a small business succeeds, it’s easy to assume that your formula is working, and you can simply copy-paste it and expand the business. However, expanding too fast can be risky – what’s to show that the rapid growth wasn’t temporary and you’re headed for a plateau?
Your best approach is to create a well-researched and steady expansion strategy that’s also well-calculated. More importantly, you need to ask yourself if you have the proper systems in place to support upscaling.
Avoid These Mistakes and Thrive
Building and running a successful small business takes plenty of strategic planning, knowledge, wise decision-making, patience, and discipline. Remember, mistakes are part of growth, and you will encounter them in various stages of your business.
Don’t be afraid to fail but rather learn from your mistakes and those of others and set yourself up for success in the long term.