Business & Commercial Law
How to Avoid Big Mistakes in Your New Business
Each year brings new businesses with owners who dream of years of success. However, 50% of all new businesses fail within their first five years, according to the U.S. Small Business Administration (SBA).
Given these statistics and what business owners have at stake, it is important to understand the most common reasons why businesses fail and how to avoid these common pitfalls.
Some of the problems encountered by new businesses, no matter the industry, include:
- Taking on too much start-up debt: Many businesses take out loans that they quite simply can’t afford to repay based on their early income. While it is important to start your business off right, it is not necessary to borrow money to make your business what you want it to be in the future. Instead, consider borrowing a reasonable amount of money that you can comfortably repay when you are starting.
- Expecting profits to cover expenses too soon: Businesses tend to overestimate how successful their businesses will be early on. It takes time to build a clientele, and it often takes new businesses a year or more to turn a profit.
- Making bad decisions: There are a lot of choices facing new businesses. If you chose the wrong location, the wrong product, or underestimate your competition, then you may not be as profitable as you anticipate.
- Expanding too quickly: If you don’t take the time to build your business at a reasonable pace, then you may soon become unable to pay the bills. Often, new businesses overestimate the space that they need to rent and the number of employees needed.
- Acting on determination and motivation: New business owners are usually passionate about their new venture, and that passion translates into a determination that is good for business. However, in addition to passion and determination, new businesses need solid business plans based on well-reasoned estimations and principles.
- Choosing the wrong business model: New businesses do not always make the right decision regarding formation. The choice can have a profound effect on an owner’s liability for debts and losses. Therefore you need to carefully consider your options when it comes to the different business types, such as limited liability partnerships and corporations
- Failing to collect: Some business owners do not follow up on outstanding invoices because they are uncomfortable doing so or are simply too overwhelmed with other business tasks. However, unpaid invoices represent lost income that cannot be used to pay expenses.
What to Do When Something Goes Wrong
First, don’t panic. All owners make some decisions that turn out far from ideal. These mistakes can be an opportunity to learn from mistakes, grow, and become profitable in the long term. While it is advisable to avoid as many bad business decisions as possible, especially when you are establishing your business, a bad decision need not be fatal to the future of your business. But do not put your head in the sand.
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