Ditching your job, going into business for yourself and making your own ideas pay has long been part of the American dream.
“Every year, thousands of entrepreneurs set out to turn their business dreams into reality,” said Marcus Astin, CEO of Pala Leather.
Unfortunately, according to the Small Business Association, only about half will ever make it to the five-year mark — and time after time, the same errors are to blame.
“While there are many factors that can contribute to a business’s failure,” Astin said, “there are some common mistakes that entrepreneurs often make.”
Mistakes are inevitable, and trial and error are part of the entrepreneurial journey, but you can boost your chances of landing among the 50% that survive for five years by steering clear of the following business-killing blunders.
Asking Too Much of Yourself and Your Employees
GOBankingRates spoke to many entrepreneurs who founded many kinds of businesses, and one theme kept recurring: the self-defeating futility of trying to do too much too fast for too long — and expecting the same of your staff.
Lulu Albanna, co-founder of WRC Media, thought she was serving as a role model for her employees by going four years without a vacation.
“I had no concept of burnout,” she said. “It was an excuse for the lazy. The outcome was that most of my crew simply burned out and left to join other organizations that offered greater independence. We lost a lot of money and had to spend a lot of money to replace the good professionals we lost. So, my recommendation is to uphold a work-life balance personally and support this culture within the organization.”
Forgetting That Cash Is King
Running out of steam isn’t the only way to peter out before you hit the five-year mark; running out of cash will shut your doors just as quickly.
“Most entrepreneurs who fail in their early years tend to do so because of weak cash flows,” said David Clark, CEO of Basement Guides. “Cash is very important for businesses of any scale. It’s what companies run on.”
It’s hardly an exaggeration. A Forbes report cites data that shows more than 80% of small businesses fail because of poor cash management and insufficient cash flows.
“New businesses tend to have fewer clients, so it’s normal for them to have low cash inflows,” Clark said. “But it’s important to balance outflows with it. If you’re not bringing a lot of money in, how are you spending so much? This imbalance between income and expenses causes new businesses to fail early on.”
In most cases, the businesses that survive will be the ones that spend those crucial first few years strengthening their cash flows.
Clark said, “They can do so by reducing expenses, avoiding payments in credit and renting out their assets when not in use.”
All great businesses start with great ideas, which come in two types: the great ideas that everyone is talking about and the ones that languish on the third page of the search results.
“One of the most common mistakes is underestimating the importance of marketing,” said Luke Lee, founder of Ever Wallpaper. “Many entrepreneurs believe that if they build a great product customers will come. However, without an effective marketing strategy, even the best products will struggle to find an audience. To avoid this mistake, entrepreneurs need to create a comprehensive marketing plan and make sure that they allocate enough resources to execute it.”
While it’s rarely wise to play it cheap where marketing is concerned, one place you never want to try to save a buck is in the hiring process. Pursue employees worth paying for and, when you find them, pay them what they’re worth.
“When funds are tight, it’s tempting to hire on the cheap,” said Bianca Tremblay, CEO of The Best Calgary. “The problem with that is that in the end you’ll end up paying the price. Cheap employees and consultants are cheap for a reason. They may be unskilled, inexperienced or unreliable.
“Don’t pay more than your employees are worth, but know you’ll have to shell out a little extra for someone who knows what they’re doing — and be sure to do your due diligence to make sure you’re paying competitive rates. Employees are the backbone of any endeavor. Hire accordingly.”
Rasheedah Thomas, founder of Emerald Digital Solutions, has been a full-time entrepreneur for more than eight years. While she has passed the half-decade mark, she has seen many others fail for the same reason — because they didn’t have the right tax-planning partner.
“I always tell new entrepreneurs to find a great accountant — one who doesn’t just talk to you every spring at tax time,” Thomas said. “I know new business owners who don’t plan properly and end up blindsided by devastating tax bills. My accountant is in touch with me every month to make sure that we are doing everything in the most strategic way so I’m set up for success at tax time. Find someone who will at least meet with you quarterly, learn how to read your financial statements, and you will thank yourself later.”
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