Whether you're buying an existing business or starting a new one, you've almost certainly heard that the odds are stacked against you. The hard truth is that 90% of startups fail, according to Forbes. What separates the handful of success stories from the bleak crowd of failures? It all comes down to avoiding the ten worst mistakes an entrepreneur can make.
Mistake #1: Trying to sell a product or service that nobody wants.
42% of startups go out of business because there isn't any market need for what they sell, according to an analysis of failed startups by CB Insights. Why do nearly half of all entrepreneurs fall into this trap?
The root cause is often a lack of robust market research. If there isn't a hungry market for what you're selling, or there is no way to differentiate yourself from the competition, then you're at risk of becoming yet another cold statistic.
Consider developing a minimum viable product, or beta version, to test real-world demand before you invest your life savings and countless hours in a new business venture.
Mistake #2: Outspending your cash flow.
29% of startups fail because they run out of money, according to CB Insights. The problem is that “running out of money” isn't the fatal problem. It's actually the end result of a chain of mistakes.
Usually, those mistakes involve a combination of high spending and a lack of new capital. In other words, businesses run out of money because they don't track their cash flow before it's too late.
Mistake #3: Commingling business and personal finances.
When you mix business and personal funds, you risk piercing the corporate veil and becoming personally liable for the debts of your LLC or corporation. That alone can have alarming long-term implications.
But there's also a hidden danger: it muddies up the waters around your business’s finances, making it difficult to know whether you are turning a profit or losing money.
It’s also easy to lose track of individual business transactions. Missing out on those tax deductions needlessly costs your business money.
Mistake #4: Not knowing your break-even point.
No matter what kind of business you run, you need to know whether or not it is profitable. To find out, you must calculate your break-even point.
For example, if the projected earnings of your business is 10%, then you would need to make $10,000 in sales for every $1,000 you spend. Or, to pay for a single $5,000 expense, you would need to make $50,000 in sales. Knowing that, would you still spend the money?
If you don't know the crucial numbers for your business, or you ignore the math, you're headed for trouble.
Mistake #5: Not shopping around for credit.
If your business uses credit cards, you should be shopping around and comparing terms. You may find that you get more points and cash back if you use separate cards for travel, office supplies, or other common expenses. Credit terms and rewards change constantly, so a little research every so often pays off.
Mistake #6: Trying to do everything yourself.
Each of us has only 24 hours a day, or 168 hours a week. What is the best use of your time this week? If you're like most entrepreneurs, you're trying to do everything yourself, all the time.
The smarter move is to outsource any tasks that don't require your direct involvement. While there is a short-term financial cost to outsourcing, the long-term payoff comes from freeing up your time and energy to grow your business.
Focus on what you do best and let the experts handle the other pieces. It will pay huge dividends in the future.
Mistake #7: Falling behind on payroll (and payroll taxes).
On the surface, payroll seems simple enough to handle. And it often is — until your business grows. When you add in the complexities of overtime pay, misclassified employees, data-entry typos, multiple locations, wage garnishment, and other headaches, it can become a full-time job.
Entrepreneurs have better things to do. Outsource your payroll so that you can focus on what is really important (whether its sales / marketing / operations). Unless you are in the accounting and bookkeeping business, you should get someone else to handle it. For the less than $100 per payroll run, it will save you a ton of time and headaches when challenges kick in.
Mistake #8: Doing accounting and bookkeeping in-house.
Just like payroll, accounting and bookkeeping should be outsourced to a trusted provider. The advantages of leveraging an outside professional far outweigh the costs.
Look for an experienced provider who has the staff and resources to stay up-to-date with the latest requirements, get all of your filing done, and keep you aware of upcoming deadlines.
Ideally, you want to work with a professional who can make recommendations about setting money aside for taxes and advise you on matters such as depreciation and tax consequences.
Mistake #9: Outsourcing to the wrong people.
The only thing worse than trying to do everything yourself is entrusting it to the first provider you find on Google. Just because a company has the top ad does not mean it is the right choice for your particular business.
To find a good provider, shop around. Leverage your existing work relationships and ask for referrals. Build a list of candidates and interview them. Find out how well would handle the task at hand, and whether they can help you streamline your business.
Mistake #10: Sticking with the status quo.
Too many entrepreneurs assume that the decisions they made yesterday will still be the best choices for tomorrow. But when you own your own business, the only constant is change. In order to keep growing successfully, you need to periodically revisit your past decisions, projections, and contracts.
For example, a provider you hired last year may have raised their rates or changed their services. Is there a better option available now? Is it time to renegotiate the contract? It pays to find out.
Build Your Business by Avoiding These Entrepreneur Mistakes
Success in business boils down to paying attention, knowing your numbers, and making the best use of your time and energy. Yes, it's distressing that only 10% of startups succeed. But most failures can be traced to specific, avoidable mistakes. Know what they are, take proactive steps to prevent them, and you’ll multiply the odds for the long-term success of your business.
Please reach out to one of our Certified Public Accountants and advisors if you would like additional information on how McNair CPA Accounting firm can help you grow your business.
Our CPAs have made (and lost) money through many entrepreneurial ventures over the years so leverage their experience for your benefit!!
702-646-0888 or www.McNairCPAs.com