According to data amassed by the Bureau of Labor Statistics, about 20% of new businesses fail within the first year of operation. If you’re hoping to start a small business of your own in the new year, you might now be at the stage of gathering information, investigating your competition, and preparing to quit your current job. But before you do, it’s a good idea to learn more about the potential pitfalls waiting for you in the process. Let’s take a closer look at a few mistakes to avoid if you’re a new entrepreneur.
1. Starting without a firm business plan
You may have an idea for a business, but have you taken the time to flesh out that idea and create a business plan? Getting started in earnest without this crucial document could mean setting yourself up to fail. A business plan is a guide to your company and everything you want to do with it over the first few years of operations. A comprehensive one will contain information such as a business overview (where does your company fit into its industry?) and an operations plan (how does your company function?).
Try not to be intimidated by the prospect of writing one — there are templates aplenty on the internet, and you can find resources on the Small Business Administration’s website. Once you’ve got a business plan, you’ll use it to track your progress, as well as to woo investors, hire staff, and even apply for grant funding.
2. Not having adequate savings
Before you quit your job and launch yourself feet first into your business, it’s important to have money in the bank. The typical emergency fund recommendation is to have enough cash to cover three to six months’ worth of bills, because that could be enough time for you to find a new job if you’re laid off. Plus, if you lose your regular job through no fault of your own, you’ll likely be entitled to unemployment benefits that will help you cover some of your expenses.
But if you’re a self-employed business owner and your company goes under, you will have no such luck. It might be prudent to therefore save up a year’s worth of expenses before launching your company, just to be on the safe side.
3. Neglecting tax prep
If you’re striking out on your own, taxes will take up a lot more space in your psyche than you may realize. Going into a new small business venture without a solid plan for handling them is a major mistake.
I became a full-time freelancer at the beginning of 2023, and one of the reasons I felt confident in doing so was because I had taken the time to find a good accountant in 2022, when I started freelancing regularly. I knew I’d need the help with estimating quarterly taxes as well as finding all the deductions I’d be entitled to come tax time. There are some excellent options for small business tax software out there, but I strongly recommend working with a human accountant, at least when you’re first getting started as an entrepreneur.
4. Undervaluing your product
If you’re going from working a job where you’re paid hourly or annually, to one where you’re selling a product or service, it can be really difficult to determine how much you should be charging. Undervaluing your time, your services, or the product you’re selling can be a significant error when you’re first getting started, because it’ll be a whole lot harder to raise your rates once you have clients who have gotten used to paying less.
As such, take the time to really dig in on market research to see how you should be setting your prices. Consider how much your competitors charge for their products that are similar to yours, and if you’re the product (say, if you’re an editor or graphic designer), research average salaries to land on the right rate to charge.
5. Never taking a break
It can be so easy to assume that you don’t need to take time off when you’re getting your business off the ground because that should be your main focus. A new business venture will indeed take up a lot of your time and energy, but it’s important not to neglect yourself in the process.
Never taking time off work will cost you good health, happy relationships, and more, so make it a point to unplug from your company from time to time. In the beginning, you might not feel comfortable taking a full week off (or even a whole weekend), but try to aim for at least one day a week without work obligations.
I’m sure you’re excited about your new company, which is perfectly natural. But try to avoid these common new entrepreneur mistakes to ensure your best shot at success.
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