Guest Article By: Derek Goodman
Around 400,000 new small businesses are started every year in the U.S. While around 80% of these businesses survive their first year, roughly 50% fail within five years. Many small businesses shut down due to cash flow problems, but poor planning and bad management are also common culprits. Business owners make several common mistakes that can hurt their businesses. Often, the consequences of these mistakes don’t show up until it’s too late to turn things around – but it doesn’t have to be this way.
Today, VIP Innovations presents five of the most common mistakes made by small business owners, so that you can avoid them yourself!
Not Forming a Legal Entity
Opening a business without forming a legal entity is a risk not worth taking. If you don’t register your business as a separate entity, you are considered a sole proprietorship, meaning there is no legal distinction between you and your business. As a result, you are personally liable for everything, whether it’s business debt or a lawsuit filed by an unhappy customer. Registering your business and forming a legal entity, such as an LLC, will protect your personal assets, improve your business credibility, and allow you to open dedicated business bank accounts. Learn how to start LLC so you can get the formation process underway as soon as possible!
Trying to Do Everything Yourself
Many small business owners start out as one-person operations. But just because you don’t have a business partner or employees to help you out, doesn’t mean you have to do everything yourself. Running a business on your own is incredibly challenging. Instead of tying up your time in day-to-day tasks, hire freelancers who can take on those time-consuming activities so you can focus on big-picture projects. The beauty of working with freelancers is that you only have to pay them for the work you need done. Time Doctor suggests hiring a virtual assistant as a good place to start!
Not Making Use of Technology
Your competitors are using technology to get ahead. If you want to keep up, you need to embrace the tech trend as well! Technology will save you time and money while improving the quality of your service and the efficacy of your marketing strategies. It will allow you to personalize the shopping experience for each individual customer and keep track of important metrics that will help you scale your business smoothly. In 2022 and beyond, you can’t afford to neglect everything that technology has to offer your small business – or yourself. For instance, you can give yourself an advantage over the competition by pursuing an MBA through an online program that will allow you the flexibility to work while you study at your own pace.
Undervaluing Your Products
Many business owners underprice their products as a promotional tool to drive volume and compete with other companies. However, Talkroute explains that this can create all kinds of problems for your business. Besides the obvious disadvantage of reducing your profit margins, underpricing can also hurt the perceived value of your products. Once you set your prices low, you’ve already told your customers what your product is worth, and you won’t be able to increase your prices without people feeling like you’re ripping them off.
Neglecting to Monitor Cash Flow
Around half of all small business failures are caused by cash flow problems. Without sufficient cash flow, your business will go bankrupt. It’s as simple as that! Monitoring your cash flow is the most important thing you can do to ensure you always have cash on hand to pay your bills. If you notice that your cash flow is trending in the wrong direction, take action immediately. You may be able to improve your cash flow by speeding up your accounts receivables, cutting expenses, or negotiating better rates with suppliers and lenders.
Running a small business is a game of making mistakes and learning from them. It’s important to realize that no matter how prepared you are, you’re going to face several challenges along your path to success. Lean into your setbacks and use them as learning opportunities!