Starting a new business is a huge undertaking and requires a lot of careful planning and preparation. Every day, someone comes up with a new idea that would make an “awesome” business; however, these ideas do not always translate into success. There are many factors that go into being a successful entrepreneur and starting a new business.
As Mike Tyson once said, “Everyone has a plan, till they get punched in the mouth”. This statement fits perfectly in today’s start-up scene. You can come up with a tangible plan, create a decent product, but end up finding no one wants to buy your product – leaving you back at square one.
According to Forbes, eight out of 10 entrepreneurs who start businesses will fail within the first 18 months. This means 80% of new businesses will not make it to the two year mark. This statistic is frightening for those who are wanting to start a new business.
If you want to have a successful company, avoid the 10 startup practices below that normally lead to a failing business venture:
1. Hiring the wrong manager to run your business
Hiring the right person to manage your company should be of the utmost importance. When you are starting a business, you want someone who is driven and focused to be the leader. Hiring someone who can’t get along with others, or throwing feuding family members into the mix is never a good idea.
There are several types of leadership styles managers can adopt to become leaders. Use these to find someone who can take on a task and see it through to completion.
2. Having only one founder of a company
Another aspect of a failing business is being founded by one person. Starting a business is hard, tedious work – even when there are multiple founders. It would only make sense that having more than one person to share the duties would make things easier. Having someone else to bounce ideas off of, support you in the decision making process, and be there through all of the trials and tribulations is important.
3. Choosing the wrong location for your business
Location. Location. Location. Having the right location is vital when you are starting your business. The wrong location can lead to dwindling sales and profits, and can ultimately lead to a failing business. You wouldn’t put a snowboarding shop on the beach now would you?
When deciding where it is you want your business to be located, it is important to think about your target market and their habits. According to CBS Money Watch, the best state to start a business in is Washington. In 2013, the number of successful businesses that were founded in the state were three and a half times more than the number of failed businesses.
4. Operation costs become more than you can afford
Starting a business is costly. There are many expenses that come along with it. For a brick and mortar store, you will have rent, utilities, labor, etc. Even for an online business, things can get expensive. Not only do you have to pay someone to run, or help run, your website, you also have to pay to advertise and market that site to get your name out there.
If you don’t have enough money allotted for these expenses, the business will suffer. Additionally, there are generally more expenses than you originally figured into your business plan. Unexpected costs to fix an emergency plumbing issue is just one example. Another is having to hire an extra employee that you hadn’t originally planned on hiring.
5. Not enough demand for the product or service being offered
One of the biggest reasons startup practices fail is because there is not enough demand for their product or service. If the demand isn’t there, neither is the profit. Knowing who you are targeting can help you determine whether or not there is a demand for your product or service.
According to the U.S. Census Bureau:400,000 new businesses are being created each year, but 470,000 are closing annually - a loss of 70,000.Click To Tweet
6. Not having enough funding for operation costs and expenses
Remember that old saying “don’t put all your eggs in one basket?” Well, this is true for businesses, too. Generally bad things will happen, and you need some sort of cushion to fall back on.
What if someone slaps you with a lawsuit? Will you have the money to pay for it? Do you have investors to fall back on, or banks who are willing to loan you money if you fall on hard times?
7. Mixing your personal money with your business expenses
While it is common for an entrepreneur to use some of their own money to start their business, personal and business finances need to remain separate. Have a separate checking account for business costs and expenses. It is also important for the entrepreneur to keep their personal and business credit cards separate. Don’t pay for businesses expenses out of your personal accounts.
8. Not being able to keep track of profit & loss
If you are not good at math, don’t rely on yourself to be the bookkeeper. Hire an accountant to keep track of your finances. By doing this, you know everything is accurate, and you can make sure you have the correct numbers.
9. Taking a salary before you are profitable
People start businesses to make money. It is common sense. However, until that business is taking off and making a profit, you need to carefully consider how much of a salary you take. Is your salary taking away from the tasks that need to be done for your business to be successful?
Can you hold out for a couple of years to start taking a salary? Yes, entrepreneurs put in hundreds of hours of work. They live and breath their businesses. However, taking a salary too early can be detrimental to the business in the long run.
10. Business growing too rapidly for you to keep up
While growth in a company is typically a good thing, too much growth at a time can be harmful to the business overall. When a business is doing well, the owner might want to go ahead and take the profits and start expanding or buy more inventory.74% of high growth internet startups fail due to premature scaling. Click To Tweet
The growth may not continue, and by expanding too quickly, the business could face bankruptcy.
Starting a new business is something to be excited about; however, that doesn’t mean there aren’t risks involved. Knowing some of these downfalls to entrepreneurship can help you to realize when you are running a successful business or getting in over your head.
According to Business Week, The National Federation of Independent Business (NFIB) estimates that over the lifetime of a business:39 percent of businesses are profitable, 30 percent break even, and 30 percent fail and lose money. One percent falls in the unable to determine category.Click To Tweet
“When a business ends, it may be because the investors have lost their investments or because they have sold out profitably,” said William Dennis, senior research fellow for the National Federation of Independent Business’ Education Foundation.
Use these ten warnings to make sure your business has the best possible chances. Do you have other suggestions? Share them with us in the comments.