According to Forbes, a new business has an 80% chance of failing within the first 18 months. Here are seven mistakes to avoid if you want your business to beat the odds:
1 Being overly optimistic about your new business
Optimism is essential for success, but if an unrealistic sense of confidence is preventing you from listening to knowledgeable advisors or potential customers, you’re setting your business up for failure. Likewise, always expecting the worst isn’t realistic either, especially when you’re putting in 12-hour days to prevent the worst from happening. Want to avoid both of these pitfalls? Stay educated, watch your pennies, and be ready to admit when something isn’t working. Whether it’s an idea or an employee, be prepared to let go.
2 Not telling people why you’re different
The quality that makes your product or service unique may be obvious to you, but prospective customers may have trouble seeing it without your help. First, make sure your business actually is different. Then tell people why it’s unique in a way that lets them know you’re solving a problem or filling a need.
3 Skipping the business plan
Fortunately, most lenders will prevent you from making this mistake because you can’t get funding without a viable business plan. Another reason to create a roadmap for your new business is that it forces you to research your industry, analyze the market, and assess your competition in a way that opens your mind to scenarios you may not have considered.
4 Not paying your estimated taxes
If you expect to owe $1,000 or more in taxes when you file your return, be prepared to pay quarterly estimated taxes. These include a 15.3% self-employment tax where 12.4% goes to Social Security and 2.9% goes to Medicare.
5 Hiring employees instead of advisors
You can’t do everything yourself when starting a new business, but taking on employees instead of consultants or contract workers may sap revenues you haven’t even earned yet. And while you probably won’t have enough money to keep a lawyer on retainer, you’ll definitely want to consult one when you’re setting up your new business or protecting your intellectual property.
6 Not maintaining cash reserves
Ideally, a new business should have at least three months of ready cash in reserve to meet unexpected expenses or weather dry spells such as seasonal slowdowns. That’s why it’s important to ‘pay your business first.’ Even if you’re working 60-hour weeks and genuinely deserve compensation, the reality is that personal needs come second (at least for a while).
7 Maintaining negative cash flow
When sales revenue, raised capital, and interest earnings are outstripped by purchases, loan payments, and uncollected debts, that’s called ‘negative cash flow’. If your new business gets into this predicament, you may be able to bring it back into the black by offering your customers more payment options or reworking your business plan. You might also try raising more capital, but if traditional lenders shy away, crowdfunding is an option you may want to explore with help from an attorney.
When starting a new business, you need more than a processor, you need a partner. Contact National Merchants Association for a merchant account that works for you. Email us at firstname.lastname@example.org or call: (866) 509-7199 to get started.