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Common Start Up Pitfalls

Common Pitfalls When Starting A New Business

Before we look at the reasons which could damage a brand-new small business, here’s a rather depressing statistic: eight out of ten entrepreneurs who launch a business, will fail within 18 months. (I didn’t make up that statistic – the research was done by Bloomberg. In addition, it has been established that 96% of businesses fail within 10 years!).

You can see, therefore, that there is a very high attrition rate and right from the beginning, the odds are stacked against the small business person. Unfortunately, many of the mistakes which lead to business failure can be easily dealt with by seeking proper research and professional guidance.

Here are a few aspects of your new business which you should look at, so that you do not become a casualty. If you do crash and burn, you should do so in the full knowledge that you have looked at all the factors and acquired all the skills that you needed in order to prevent your business going down.

All you need to be successful is the right product in the right marketplace which you are able to sell at a profitable price.

Many new entrepreneurs are risking their own money so therefore  the thinking  process needs to be very different from the salary-earning executive, because of one very important factor which is often overlooked. That is the new entrepreneurs’ emotional involvement in the business. It is that which makes decision-making doubly difficult.

It does take time, but it is important that a new entrepreneur learns very quickly how to take the emotion out of analysing any situation and not overreacting to any issues which may arise because he or she takes any setbacks personally.

A new entrepreneur has to be both a chief executive officer, as well as the representative or salesmen, accountant and sometimes even the product producer. It is hardly surprising therefore, that because there are so many different aspects of the business to think about – stress can have such a huge impact on the business thinking process.

Luckily however, nowadays, with the advent of the information highway, you are able to learn from other people’s mistakes. So let us have a look at the few most important pitfalls which you need to be aware of.

It  is assumed that your product is excellent and that there is a market place out there for the product. That is the first hurdle that needs to be negotiated and if you cannot agree with that first sentence, then either you have not done your market research properly or you have a very strong belief that you can create a market.

If you are providing a service, do make sure that the problem that you are solving for others does exist and that there is a market for your service and that you have some sort of USP – Unique Selling Proposition. In other words, why should people buy from you? That is another question which you ought to be able to answer.

Assuming that your product is okay for the market, the next reason why entrepreneurs fail is that they do not see or contact enough people or they do not have the right amount of access to the right people. In other words, a good entrepreneur has to be proactive and make him or herself known within the chosen marketplace. One of the great pitfalls of any new business is that far too many entrepreneurs have a wonderful product, a great website, but they spend far too much time sitting in front of the screen waiting for the phone to ring. It’s not going to happen!

Above I mentioned that an entrepreneur has to be everything from CEO to salesmen. That is another pitfall and probably one of the most common ones in that you as an entrepreneur want to be all things to all people. Do not be frightened to go and ask for help. Getting to know a good business adviser could be one of the best investments a new entrepreneur can make. There are far too many new entrepreneurs who try to be a ‘jack of all trades’.

If you are serious about building a business, one of the first things you should concentrate on is developing your cash flow to such a level that you can afford to buy in some expertise.

Bringing a product to market and trying to sell as many units as you can is not really a business plan, but you’d be surprised by how many so-called entrepreneurs do just that. That means that what you need is a properly conceived and constructed business plan and by the way, be prepared for the fact that you are not going to make too much money in year one. One of the biggest reasons for failure is a lack of financial planning plus an over optimistic cash flow forecast. To avoid that particular pitfall I will give you one piece of advice which is to overestimate all your costs for the first year and underestimate revenue.

You may have heard the term ‘contingency planning’. Another pitfall of the new entrepreneur is that he or she does not have a contingency plan should things not go according to expectations. After you have put together a proper business plan together with your business objectives and action plans, you should try and create several scenarios should things not go according to your predictions.

Of all the pitfalls above, and assuming that you have decided that you are suitable for the life of an entrepreneur can be an inability to properly market your business as well as having the expertise to organise your ‘back office’.

Finally, this may sound a little ridiculous, but you should also be prepared for your business to  grow much faster than you had anticipated! It does happen!

Hopefully, that is the only problem that you will have to deal with!

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AN UP-TO-DATE BUSINESS PLAN THAT INCLUDES:

One- and three-year projections
A capital budget

AN ANNUAL MARKETING PLAN THAT INCLUDES:

Precise sales and profit goals and timetables
Strategies and tactics for the next three years
Budgets, Forecasts, and Benchmarks
A tentative sales plan
My marketing plan also includes:
The demographics of my target markets
A thoughtful definition of the markets we serve
A definition of the needs/wants our products and services fill
An analysis of the growth potential of our markets
A competitive analysis
A definition of our "Unique Selling Proposition"
Projections for other products or services that could be developed
Timetables for research and development

MONTHLY BUDGETS AND STATEMENTS THAT INCLUDE:

Thorough and up-to-date records
Cash flow budget
Profit and Loss (Income) Statement
Balance sheet
Deviation analysis
Standard cost comparisons
Cash reconciliation

AN INFORMATION BASE THAT ALLOWS ME TO:

Keep track of new developments in the industry
Obtain and study key trade information
Understand what “state of the art” means in this business
Provide customers with the best available information about our products and services
Keep all our employees adequately informed

I’M CERTAIN THAT THE BUSINESS IS PROPERLY CAPITALIZED BECAUSE I:

Base capitalisation on worst-case planning
Have emergency funds (or access to them)
Have discussed this with my banker

I UNDERSTAND THE VALUE OF THE BUSINESS BECAUSE I’VE MADE USE OF:

Professional appraisers
Present value methods to evaluate terms
Professional tax planning
Accurate, timely financial information

I STRIVE TO IMPROVE PRODUCTION, QUALITY, AND OPERATIONS BY:

Keeping the equipment in top condition
Maintaining safe conditions
Establishing high standards
Standing behind our products and services
Not tolerating shoddy performance
Working for consistency
Using our company’s “look” as a statement to our markets

PERSONNEL DECISIONS ARE BASED ON HUMANE, CAREFULLY CONSIDERED POLICIES THAT INCLUDE:

Checklists to make sure objectives are clear
Communication, to make sure objectives are understood
Written job descriptions
Regular progress and performance evaluations
Fair hiring practices
Fair wage scales

AS FOR MY OWN PERSONAL/MANAGERIAL SKILLS, I WORK HARD TO:

Develop my problem-solving abilities
Always stay calm
Be objective
Avoid investments in my own ego
Listen to my employees
Plan changes in our course to minimize negative effects
Make decisions promptly
Always get the facts behind problems
Accept my own limitations
Delegate tasks that can be done more efficiently by someone else
Analyze all available options
Develop my reading/study habits
Improve my skills
Consider and evaluate risks
Be positive with customers, employees, associates

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