7 Deadly Mistakes People Make When Starting Up A Business And How To Avoid Them

7 Deadly Mistakes People Make When Starting Up A Business
And How To Avoid Them




Introduction

Launching a small business can be risky and success is not always guaranteed.
Businesses are most vulnerable to failure during the early years of trading, with
20 per cent of new businesses folding within their first year and 50 per cent within
their first three years.

These figures should not scare you off, but should prepare you for some of the
challenges entrepreneurs face when starting a business. With hard work and an
awareness of the issues, a new business can be a great success.

This guide looks 7 Deadly mistakes new business owners make and, more
importantly, how you can avoid them. It also shows you how to improve the
chances of your business idea succeeding.

Deadly mistake number 1

Poor or inadequate market research

Research and planning are vital to ensure that your business idea is viable. A common misconception is that entrepreneurs who fail simply lacked sufficient funding or did not put the right team in place. However, many fail because they have not spent enough time researching their business idea and its viability in the market.

Lack of in-depth market research

Lack of proper market research is one of the key problems for new businesses.
It's easy to get carried away with a business idea and set up a business without
testing its viability.

Accurate market data will help prevent over-optimistic forecasts Keeping your business ideas to yourself

Failing to share your business ideas with people you trust means that you will
miss out on objective feedback.

Brainstorm with other colleagues to give you valuable perspective. Note down
any good ideas you get from brainstorming and use them when developing your
business.

If you want to keep your ideas confidential, consider using a non-disclosure
agreement, also known as a confidentiality agreement. This will allow you to
share your ideas with colleagues without the risk of them divulging the
information.

Not knowing your clients or marketplace

If you do not complete adequate research, you are in danger of selling to the
wrong people or of not understanding your marketplace. To avoid this:
• use information, such as free government data or your own network of
contacts
• carry out field research to explore customers' profiles and discover buying
trends
• swap ideas with people in the same sector

Deadly mistake number 2

Weak financial planning

Financial planning is extremely important for most new businesses. A lack
of capital, lack of a contingency plan and reluctance to seek professional
advice can all bring major problems.

Lack of capital

Having sufficient capital is essential for the survival and prosperity of your
business, and is a primary indicator of your business' health.
the right type and amount of funding that you need to make your business
successful. A business plan can:

• be used as a tool to structure the financial side of your business
• and can be updated and changed as your business grows
• keep your expectations for what can be delivered grounded

Lack of a contingency plan

Without a contingency plan you can leave yourself exposed to the
unexpected.

Situations beyond your control that may impact on your business and cash
flow include interest rate rises, transport strikes and political instability.
While your business can survive periods where there are no sales or
profits, it cannot survive without cash. Building up cash reserves will
ensure that you can trade effectively and develop your business.

A reluctance to seek professional advice

Failing to seek professional advice will make any financial troubles worse.
Few new business owners can claim expertise in all areas of their
business. Using an accountant or financial adviser can help you ensure
you borrow and manage money cost-effectively.

Deadly mistake number 3

Setting sights too high

It is important to make realistic forecasts about your business' potential.
During the start-up phase, it can be easy to make over-optimistic
forecasts, however there can be serious consequences for your business
if your projections are not realistic.

Over-optimistic forecasts about market size

Inaccurate forecasting of market size is a common mistake when starting
up. Cash levels can be quickly depleted if you recruit too many people, buy
unnecessary equipment or spend too much on business premises.
Effective cash flow and income forecasting can help you avoid this.
Inaccurate forecasting is often linked to poor market research, so it is
essential to get your research right.
Focusing on sales volume or size not profit
A common mistake for new businesses is to focus too much on growing
the sales volume or size rather than profit.
Overtrading can occur during the rapid expansion of a new business when
it takes on more orders than can be supported by its working capital or net
current assets. This can have serious repercussions.

Diversifying too soon

There may be a temptation for you to tap into a new market or
geographical area, but keeping a clear focus on your core business is
crucial. Diversifying too quickly can actually increase your business risks
during the vulnerable start-up stage.

Poor planning
Poor planning will increase your chances of making business mistakes
and will reduce the probability of achieving your goals.
Drawing up a high-quality and realistic business plan is essential. A
business plan will help to secure external funding, pre-empt problems and
measure how well your business is doing.

Writing a marketing plan will also ensure that you take into account your
target customers, your marketing objectives and will help you set goals to
address these.

Deadly mistake number 4

Taking your eye off the competition

During the busy start-up phase it can be easy to forget to set aside
enough time to monitor the competition. However, it's essential that you
are ready to respond to competitors in your market place and to new
developments.

Failing to actively monitor the competition

Failing to monitor your rivals will stop you from seeing what competition or
threats to your business exist in your market place.
Competition is not just another business that might take money away from
you. It can be another product or service that's being developed which you
ought to be selling or looking to license before somebody else takes it up.
You can get clues to the existence of competitors from:

• advertising
• press reports
• exhibitions and trade fairs
• questionnaires
• searching on the web for similar products or services
• approaches reported by your customers
• flyers and marketing literature that have been sent to you - this is quite common if you're on a bought-in marketing list
• planning applications and building work in progress

Failing to act on competitors' information

Failing to use information gathered about your competitors will weaken
your position in the market.

Feed any useful information into your marketing plan. Your marketing plan
and research will help you to set realistic targets and deadlines, and
allocate appropriate resources. You can then decide to focus on building
relationships with your existing clients or attract new customers. Your
marketing can then be turned into sales by deciding on your sales
methods.

Deadly mistake number 5

Poor supplier and customer controls

Failing to choose suppliers carefully and set up satisfactory credit
arrangements are common mistakes for new businesses. Choose
carefully as your business' profitability and reputation could be at stake.

Setting up poor supplier contracts

Finding a reliable and competitively priced supplier can be vital to the
success of your business. This is because you rely on your suppliers to
provide you with the goods and services your business needs to operate.
And getting the best deals can have a significant effect on your business'
profits.

When selecting your suppliers, price is an obvious concern. However,
other factors such as value for money, quality, reliability and service must
also be taken into consideration.
Establish exactly what you are looking for in a supplier. Carry out a credit
check to ensure that the supplier can deliver what you need and is not
about to fold. Once you have identified your chosen supplier, you can
then discuss terms and conditions and draw up a formal contract.

Setting up poor credit arrangements

If you are dealing with a potential new customer, it can be tempting to offer
credit without carrying out checks. But this can leave your business
exposed to delayed or non-payment. You may find that you cannot pay
your suppliers or bank on time. In turn, they may withdraw their supplies or
funds, putting your business at risk.

To avoid potential problems with customer payments, you may want to:

• carry out credit checks on new and existing customers
• check bank references, trade references and online credit-ratings, from a credit-reference agency
• ensure that your customer is aware of your credit terms (eg they must pay within 30 days) and that the payment terms for your debtors is longer than the terms offered to customers
• motivate customers to make early payments by offering discounts
• investigate legally enforceable ways of encouraging prompt payment

Deadly mistake number 6

Poor stock and asset management

Poor stock control and over-investment in fixed assets can mean your capital is
tied up unnecessarily.

Poor stock control

Efficient stock control (inventory) will mean you have the right amount of
stock in the right place at the right time. It ensures that capital is not tied
up unnecessarily, and protects production when there are problems with
the supply chain.

You need to put systems in place to keep close track of stock levels and
values. Taking control will allow you to free up cash, while also having the
right amount of stock on hand.

There are a number of ways you can approach stock control. You can:

• re-order when stock reaches a minimum level
• carry out regular reviews of stock
• use just in time (JIT) delivery to avoid excessive stock build up

Over-investing in fixed assets

In the early years of your new business, you need to limit drawing on your
cash reserves unnecessarily. Over-investment in fixed assets, such as
office furniture or computer equipment can be a problem. Acquiring fixed
assets outright gives you ownership straightaway, but you have to pay for
the full cost upfront, which drains cash.

The alternatives include:

• Leasing assets - at least while your business finds its feet. This allows you to spread payments in regular installments over a fixed period, thus freeing up more cash. You may be able to upgrade equipment without having to buy more up-to-date models.
• Hire purchase - you own the asset at the end of the payment process. This is not the case with leasing.
• Buying second hand - for office furniture, fittings, etc.

Deadly mistake number 7

Hiring the wrong people

A large part of your new business' success will be determined by the quality of
the people you recruit. Taking on people will always mean some form of
investment for your business and requires careful consideration. Taking this
investment seriously can make it more valuable and improve your chances of success.

Ensuring that you hire high caliber people with the right mix of skills is not an
easy process but one that will pay dividends.
How you go about employing new people will depend on your business needs,
e.g. whether the work is constant, how long it will last and the number of hours
available.

You need to explore all the options available to you. These include:
• recruiting permanent staff on a full or part-time basis
• fixed-term contract employee
• temporary staff
• freelancers
• consultants
• contractors

Employing relatives and friends may appear an easy solution to staffing issues,
but they may not have the right mix of skills that you need. It can also be
more difficult to bring a period of employment to a close when a personal
relationship exists.

Failing to delegate

Being your own boss may be a key motivator to setting up your own business.
However, delegating the right task to the right person is important for both you
and your business. Failing to delegate could mean you take on too much and
increase your stress levels.

A good way to tackle delegation is to identify a few key tasks of your own that are
very valuable to the business and handover the rest to your team.

I can help you with this if you like.

My details are below:

Ken Ajoku
Business & Marketing Advisor

Website: TheKajokuGroup.blogspot.com
Mobile: 07956 515 868