Five common mistakes that can overwhelm a small business (and how to avoid them)

Entrepreneurship is booming since the pandemic. In fact, according to the report of the American Census Bureau, a staggering 5.4 million new business applications were submitted in 2021. This number broke the previous record of 4.4 million set in 2020, when the COVID pandemic began.

The reasons for this trend are numerous. Many of the people who decided to start their own business were those who lost their jobs due to the COVID pandemic. Many Americans began to think philosophically about their lives and decided to leave their current careers and find a new path. They decided that there might never be a better time to change course and realize their dreams of owning a firm. Some of them used government incentive checks to launch their new ventures.

Although entrepreneurial optimism abounds, the reality is that about 20% of small businesses fail in the first two years, and about half fail within five years. The unfortunate thing about this reality is that many small business owners who struggle with problems make the same common mistakes.

Not doing enough research. Some people think they have a great business idea, but they may seem more impulsive than arguing for success. For example, choosing a less desirable location because rent was cheaper could have a devastating effect on revenue.

“Understand your industry,” says Marie Tautimes, a prosperous business owner and author of #Continue: from a 15-year-old mom to a successful CEO and entrepreneur. “Go even further to analyze the market and what you are facing. If you start your startup without knowing the history and mission of your competitors, it could lead to your failure. ”

Before starting any venture, it is necessary to prepare a well-researched, professional business plan that provides a 3-5 year plan for the company. It should contain a summary and full explanation of what the business is, who runs it, who the target audience is, how to reach that audience, market competition, financial data and other information.

Lack of capital. Before you start a business, estimate the amount of money you will need to start a business … and then double it! Even the most experienced business people will face costly delays that could mean paying another month’s rent without generating revenue. We have seen in the last few months how quickly and unexpectedly the prices of things like gasoline, utilities, materials and labor can rise sharply. Make sure you have enough spare money to be able to go through hard times and / or seasonal downturns.

Share capital can dry out quickly, and you certainly don’t want to go back to a bank or other lender for another small business loan in a relatively short period of time. Returning and asking for more money after you have already received a loan will probably raise flags that the owner has not planned well enough or that the business is simply not sustainable. Make sure you borrow enough money to start a business and maintain it during the often difficult first months.

There are several types of lenders to choose from. Big banks are often the first lenders to turn to beginners. After all, they have the most famous brands and often have a far-reaching branch network. However, large banks with $ 10 billion in assets are currently approving about 15% of the loan applications they receive, according to the latest Biz2Credit Small Business Lending Index (April 2022 data).

Smaller banks approve about 20% of their funding requests. Regional and community banks are often able to provide SBA loans, which are supported by a federal agency. These loans are attractive, but because a government agency is involved, more paperwork is involved, which can be time consuming.

Non-bank lenders, including factors and companies for cash advance merchants, can be a sustainable source of financing and are often more willing to lend than banks. It is important to keep in mind, however, that they charge significantly higher interest rates.

You try to do everything yourself. Entrepreneurs often take matters into their own hands when starting their own companies and tend to refrain from hiring (in an attempt to reduce costs). After all, US labor costs have reached their highest level in 20 years in 2021 and show no signs of slowing down.

However, as tempting as it is to delay hiring in the early stages, trying to do everything yourself can quickly lead to burnout. Focus on the things you excel at and hire competent people to deal with other aspects of running a business.

Non-compliance with the budget. The “business of running a business” can often be seen as a less glamorous part of starting a business. For example, creative types (artists, florists, cooks, etc.) may not be as good at keeping track of their expenses as an entrepreneur with a degree in accounting. Non-determination and maintenance of the budget can lead to the company starting to lose money and, in the end, can lead to a feeling of overload.

Establish a budget and stick to it. Use Excel or Quickbooks to track income and expenses. If you can’t afford to hire a CPA, you may want to add a cheaper accountant who can prepare monthly financial reports that track profitability.

Poor marketing strategy. Get to know your target market and how to reach it. It sounds easy, but it can be difficult. A professional-looking, mobile-friendly website is vital to the 21st century. Take advantage of social media to make noise about your company. Understand what the audience is on different media channels. You want to reach teenagers, Facebook is the wrong vehicle. Demographics are older. You are more likely to find teenagers on Instagram or TikTok. Companies are increasingly discovering the effectiveness of sponsored content, which can be found by search engines like Google, rather than more traditional forms of advertising. Printed newspapers and magazines are waning. Nowadays, digital news sites are growing by leaps and bounds and providing an attractive audience at cost-effective prices.

“Your startup will not succeed if you do not know how to place it on the market properly, especially in the digital age. “Poor marketing prevents good products and services from being successful,” says Tautimes. “Tell the relevant audience about your new product using social media marketing, which is free and can help you reach a wide audience. Learn how to write compelling content, present your products in videos, and how to generate leads through a variety of forms of communication. ”

“Mistakes are inevitable for a new entrepreneur,” says Marie Tautimes, a prosperous business owner and author of #Continue: from a 15-year-old mom to a successful CEO and entrepreneur. “The most successful learn from them and improve their practice. Test new ideas, get feedback and review them as needed. ”