How to Avoid Big Mistakes in your New Business
By: LawInfo
Published: 05/2010
Each year many new businesses are formed and start with dreams of becoming successful. However, 50% of all new businesses fail within their first five years, according to the Small Business Administration (SBA). Given these statistics and what business owners have at stake, it is important to understand the most common reasons why businesses fail and how to avoid these common pitfalls.
Business Practices to Avoid
Some of the problems encountered by new businesses in many different industries include:
· Taking on Too Much Start up Debt: many businesses take out loans that they quite simply can’t afford to repay based on their beginning monthly income. While it is important to start your business off the right way and in a professional manner, it is not necessary to borrow money to make your business what you wish for it to become in future years. Instead, consider borrowing a reasonable amount of money that you can repay comfortably when you are starting out.
· Expecting Profits to Cover Expenses too Soon: businesses tend to overestimate how successful their businesses will be within the first few months and years of business. It takes time to build a clientele and it often takes new businesses a year or more to turn a profit.
· Making Bad Decisions: there are a lot of decisions facing new businesses. If you chose the wrong location, the wrong product, or underestimate your competition then you may not be as profitable as you anticipate.
· Expanding too Quickly: if you don’t take the time to build your business at a reasonable pace then you may quickly become unable to pay the bills. Often, new businesses overestimate the space that they need to rent and the number of employees whom they need to hire.
· Acting on Determination and Motivation: new business owners are usually passionate about their new business ventures and that passion translates into determination that is good for business. However, in addition to passion and determination, new businesses need a solid business plan that is based on well reasoned estimations and principles.
· Choosing the Wrong Business Model: new businesses do not always consider, or make the right decisions, regarding business types. The choice can have a profound effect on an individual business owner’s liability for debts and business wrongdoing. Therefore, the different business types such as limited liability partnerships and corporations must be carefully considered.
· Failing to Collect Monies owed: there is a lot to think about when you open a new business. Some business owners do not follow up on outstanding invoices because they are uncomfortable doing so or are simply too overwhelmed with other business tasks. However, unpaid invoices represent money that is lost to the business and that cannot be used to pay expenses or be realized as profits.
What to Do When Something Goes Wrong
First, don’t panic. All businesses make one or more business decisions that are far from ideal and go on to learn from their mistakes, grow, and become profitable in the long term. While it is advisable to avoid as many bad business decisions as possible, especially when you are establishing your business, a bad decision need not be fatal to you’re the future of your business. The most important thing for you to do is to acknowledge your mistake and not to put your head in the sand in an attempt to pretend the error never occurred. You must address, and correct, the problem as soon as possible.
Other Business & Corporations Articles
-
Choosing your Business Entity Structure
Businesses can operate in a variety of structures, such as a sole proprietorship, partnership, limited partnership, corporation, or limited liability company. Each of … More -
How to Form a Limited Liability Company
A limited liability company (LLC) offers business owners limited liability for the acts and financial debts of the business. An LLC can be a sole proprietorship … More -
The Board of Directors Duties of Care and Loyalty
The stock market gives many Americans a chance to have a small ownership share in publicly traded companies. Stock holders, as partial owners of the company, … More -
A Breach of Fiduciary Duty
Boards of Directors have legal, and arguably moral, responsibilities to the shareholders who depend on them to run a business. Those duties are called fiduciary … More -
Are There Any Limits on Executive Compensation?
Business executives are often among the most well paid individuals in our society. They have a lot of responsibility and they are experts in their … More -
The Sarbanes Oxley Act: Success or Failure?
After the Enron scandal shocked the world and created doubt about the accounting principles of public companies, the United States Congress passed the Sarbanes-Oxley … More -
How to Name Your Business
Coming up with a business name may be harder than you think. First, think of ideas for your name that are descriptive of the business, standout and grabs … More -
How to Finance a New Business
Starting a new business is never easy, and, unless you’re independently wealthy, you’ll need some money to get started. If you aren’t lucky … More -
Advertising Your Business on the Internet
With Internet sales and advertising continuing to rise as a predominant force in today’s marketplace, it is essential that you market your product or services … More -
Due Diligence in Business Mergers and Acquisitions
Business transactions often require that many people trust a few people to make important decisions about investing money, buying or selling businesses, or pieces of … More
