When starting a business you can be filled with a mix of new-found confidence and nervous energy as to what lies ahead. The thought of becoming your own boss, instant success and your weekends off does sound really appealing. This passion and enthusiasm can certainly fuel your success if used properly. However, with many start-ups, this energy can lead to impulsive behaviour and rushed decision making which, in time, will lead to the beginning of the end for your new business.
Remember, every business decision needs to be thought through fully before action is taken.
Here are my top five mistakes to avoid when starting a new business:
SIMPLE MISTAKE 1
CONCENTRATING ON SALES AND NOT PROFIT
Have you heard of the old saying “sales for vanity, profit for sanity but cash is reality”? Well, when it comes to running a successful business no phrase is more accurate or relevant.
Constantly striving to bring in more sales, without looking at the bottom line, and more importantly, your cash reserves, will lead you on the road to no-where, which can be a very short and lonely road.
Sales mean nothing if they are not contributing to an overall profitable business. It’s what you get to keep after covering ALL costs that matters and is of most importance.
In business, cash is like oxygen. It’s not what we live for, but if it runs out, you will quickly notice.
SIMPLE MISTAKE 2
NOT CARRYING OUT ADEQUATE MARKET RESEARCH
You’ve had a brain-wave for a new business or product and all your friends and family think it’s a great idea and can’t fail. Stop right there! Whereas feedback on a business idea is always welcome you need to mindful that your audience (family & friends) are all on your side and, for fear of hurting your feelings, may not necessarily tell you the truth.
It’s very easy to get carried away with a business idea and set up a business without properly testing its viability. Obtaining accurate market information will help you to understand your customers, familiarise yourself with the competition and get to know what people are prepared to pay for your product or service.
It’s also important to consider what your customer ‘needs’ and ‘wants’ are and to use market research to test them. You then use this feedback in order to create a product or service that has definite market.
SIMPLE MISTAKE 3
POOR LOCATION – ONLINE AND OFFLINE
You’ve often heard that success in business can very much depend on “location, location, location” as it can be one of the determining factors in the failure rate of most new ventures. For start-ups a bad location is often a major challenge they face due to tight budgets and other priorities.
The prime retail units, with significant footfall, are simply too expensive so they tend to choose out-of-the-way locations in the hope that customers will come.
The same can be said about your online footprint. You may have invested significantly in the creation of a world-class website but if nobody knows where you are how can you expect to sell anything?
That is where the importance of a proper marketing plan can be hugely effective and can turn your ‘bad’ location into a winner. This doesn’t need to cost the earth. A savvy social media campaign can be just as effective as a 20 foot billboard in the city centre. Start to think outside the box!
SIMPLE MISTAKE 4
NOT REALISING YOUR PLACE ON THE PAYMENT HIERARCHY
Your business has started off really well and you have decided to give yourself a bonus for all of your hard work. But hold it! You have yet to pay your VAT bill, your suppliers or your bank loan.
When it comes to starting a new business unfortunately you need to realise that the business owner (YOU) are the last to be paid.
In reality, you will need to budget to not take any income from the business for at least 3 – 6 months. Once the business is financially secure (i.e. it has three months cash flow in reserve) your aim should be to take survival income from the business and to re-invest the rest. This may not seem overly appealing to you but believe me it is far more appealing than winding-up your business after just 18 months.
SIMPLE MISTAKE 5
FAIL TO PREPARE, PREPARE TO FAIL!
I cannot underestimate the importance of putting a plan in place. Whether it is in the form of a business plan for investors or simply an internal document for yourself, it is essential that you put your plan down on paper. It is not enough to claim that it is all in your head.
“A goal without a plan is just a wish” – Antoine de Saint-Exupéry was a French writer, poet, aristocrat, journalist, and pioneering aviator.
Your plan, at a minimum, should include details of the monthly break-even amount needed by the business and a realistic 3 month cash flow projection that hopes for the best, but plans for the worst.
Remember, your plan is a moving document and not set in stone. As the business changes so too does your plan.