Setting up your own business: Five mistakes to avoid
It’s never easy setting up a company, particularly if you’ve had no experience of running a business before. So, to give yourself the best chance of success, it’s worth being aware of some of the potential pitfalls that could cause many new firms to fail. Here are some examples:
Having insufficient capital
This is a key reason why so many small businesses go under. Unless you’re already a successful small business owner, or you have a new business idea loved by financial backers, then you’re likely to find it hard to get funding.
Banks are reluctant to lend money to businesses with no track record so many people use their own savings to fund their new business. That’s understandable, but it can be risky. If your business doesn’t take off as quickly as you had hoped then you’re likely to start to burn through your capital. If that’s the same pot of cash that you use to pay your mortgage, other personal loans and your household bills, then you could find yourself without enough money to make ends meet.
So, before setting up your business, it’s important that you estimate conservatively how much you think it would take to finance your start-up. You’ll want to have enough money to tide you over for at least the first six months, without much money coming in. Having enough to cover you for a year is even better.
Not keeping a tight control on your expenses
Often, start-up owners are so focused on getting their business up and running that they might not realise their costs have run out of control. For example, they might decide they need to do a marketing campaign to attract customers, or they need a new piece of equipment or even a new employee.
But unless you’re sure the new investment will generate enough extra revenue to cover itself then it might be best to not spend the cash. Even when your business is profitable, you may be on a slippery slope if your capital is dwindling.
Hiring the wrong people
If you run a small firm, it’s crucial to have the right people working for you. If you make the mistake of hiring someone who’s bad at the job, or just not as good as you’d expected, then it can drag your small business down, and also drive you mad!
Before you employ anyone, write a good job description and a list of what you’re looking for in your ideal candidate to help you make the right choice.
Not having a marketing plan
It doesn’t matter how good you or your products are if you don’t have a good strategy for how to sell those to customers. You need to do your homework even before you put up the ‘open for business’ sign: research your market, know who are your competitors and how they operate, work out who are your target customers and which are the right ways to reach them.
Many start-ups may regard creating a website as a luxury, but having one can be really important. It enables you to sell your wares far beyond your local area, reaching many more potential customers than you otherwise would.
Also, even if you rely on getting new clients through word-of-mouth recommendations then a website is important, as many people will automatically Google your company name to find out more about you. It may worry them if they can’t find you on the internet, making them less likely to contact you.
At Hiscox, we want to help your small business thrive. Our blog has many articles you may find relevant and useful as your business grows. But these articles aren’t professional advice. So, to find out more on a subject we cover here, please seek professional assistance.