Starting a new business takes guts but although first-time entrepreneurs are admirable, they are also prone to making mistakes. Today’s business environment is more difficult to navigate than ever, with ever-evolving pitfalls and sudden market shifts. The pandemic has greatly affected the business landscape and as the ripple effects continue to be felt, no-one can be quite sure what is going to happen next.
With all of that being said, the world also needs new entrepreneurs to get out there and make great things happen. We’ve put together a list of the five most common mistakes we see new entrepreneurs make so that you can avoid these pitfalls and pave the way to financial success.
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Overspending
When you start a new business, it’s very tempting to go all-out and buy fancy office furniture, state-of-the-art technology and a deluxe espresso machine but that is certainly not the wisest way to go about things. Running out of cash is one of the most common reasons startups fail, so reign it in wherever possible and allocate funds properly.
Rather than overspending, focus on using your profits to build up a cash reserve that will protect your business against emergencies and unforeseen costs. Buying second hand office furniture and slightly older equipment can really help to cut expenses. It’s also a good idea to encourage flexible working, as this will permit you to rent a smaller office space and save on utilities.
Undervaluing Yourself
When you start a new business it’s only natural to be keen to get new customers as soon as possible, which leads many entrepreneurs to underprice their products or services. However, this strategy will actually cost you money in the long run. Moreover, once you start competing on price it becomes very difficult to stop. Start as you mean to go on.
Muddling Finances
Using your personal bank account for business transactions will most likely lead to a huge headache when it comes to bookkeeping and even cause you to miss out on tax deductions. Furthermore, it does not display fiscal responsibility to creditors and investors. Open a separate business account as soon as possible to keep your records clear and easy to understand.
Scope Creep
It’s important to work hard to make your existing customers feel valued and keep them coming back. However, when the scope of a project begins to creep beyond the agreed parameters, it can prove costly and time-consuming for you. It’s important to be upfront with your customers or clients about added costs to make sure that you’re not being underpaid for your work.
Choosing the Wrong Business Structure
It’s important to start off on the right foot, so choosing the wrong business structure is a big mistake. The structure you choose is very important to your operations, tax burdens and asset liabilities. Each structure has its own benefits and disadvantages so make sure you fully understand your options before you choose. It’s best to consult a financial professional such as a coach, finance director or accountant before making a final decision.
Summary
No new business owner gets everything right, but it is important to be aware of the biggest mistakes so that you can avoid them and start off on the right note. By remaining financially conservative whilst valuing your products or services appropriately you can help to boost profit margins. Additionally, maintaining clear financial records will help you remain compliant and create accurate projections. Finally, it’s important to be aware of and avoid scope creep as much as possible and make an informed decision when it comes to choosing the right business structure so that you can set yourself up for success.