Despite its flaws, America is still the greatest entrepreneurial market in the world. You wouldn’t know it listening to the perpetual gloom, doom and petty whining of popular media, but there are few other places it’s easier to start and run a successful business than right here. This here is America and it’s still the land of opportunity for those with the drive.
All the same launching out on your own is fraught with potential pitfalls; financial disaster stalks new businesses like a predator in the night and the majority of small companies don’t make it. Only rarely are the reasons a new business fails external; more often the seeds of failure are sown during the very first steps in planning. The mistakes budding entrepreneurs make are remarkably similar.
Sometimes borrowing money to get your business off the ground is unavoidable, but excessive debt will strangle profitability and rob new businesses of much needed cash. Taking on too much debt early on is like an airplane too heavy at takeoff; it may look impressive headed down the runway but it’s not going to get off the ground and the trip is going to end badly.
Expecting To Make a Profit Too Soon
There are very few businesses that are profitable straight out of the gate, no matter how large the product margin. Every new business will require a stash of cash to pay the bills until it can start bringing in enough cash to be profitable. Too many times entrepreneurs will raise just enough cash to get the business going but not enough to keep it going. It’s important to structure debt and expenses with this in mind. It may be a year before your business can comfortably start to pay back loans and it may need supplemental cash for months after you open the doors.
Never Modifying Your Business Plan
Surprisingly, most people planning on starting a business do pretty well on their initial business plan. It’s not that difficult to get a book like The Business Planning Guide by David H. Bangs or take a small business class and follow the steps of putting together a business plan. After that it goes into a filing cabinet and never sees the light of day again. A business plan should be a living document that changes as your business grows and adapts to new realities as they arise. Too many times people will start off with a good plan — no, a great plan and a year later they’re flying blind.
Hiring Employees Too Soon
Employees are expensive and bringing in too many people too fast will drain cash reserves at an alarming rate. Each employee has to be profitable the day you hire them. It’s easy to get busy and stressed out and imagine that hiring someone to help is going to make life easier. But unless you know exactly how much cash that employee is going to bring in and have enough cash in reserve to make payroll until they’re profitable, hiring to meet short-term demand is almost always a big mistake. Hiring the wrong people is just as deadly but easier to avoid.
Getting Emotionally Attached
A new business can sometimes spark maternal instincts in people that lead them to make indulgent decisions. This is not a valued family pet that needs an expensive operation, it’s not your baby, it’s a business. If you’re not going to make it, it’s better to close the doors and live financially to fight another day than to put up the house and your kid’s college fund in a valiant effort to stave off the inevitable.
Running a business means treating it like a business and not a hobby. It takes cold calculation and a sharp pencil to make a business work and the ability to adapt to a constantly changing market. Being an entrepreneur means learning to become comfortable with discomfort and constantly finding new ways to stretch resources. It’s no easy task and it’s critical to avoid the common landmines that put small companies out of business.