Updated: Dec 18, 2019
Here are 5 common mistakes entrepreneurs make when it comes to starting and operating their businesses:
1. Not Selecting the Appropriate Business Structure: When starting a business, selecting the most appropriate business structure is vitally important. Being a sole proprietor is easy to start however all the liability fall on you. Creating a partnership may be good however you have to make sure you can trust the individual(s) you are in business with. Creating a corporation is great due to the limited liability aspects under normal circumstances however the startup cost are more expensive. A Limited Liability Company (LLC) may also be a great choice however again the startup cost is higher. In addition, each business structure brings unique advantages and disadvantages so being familiar with each one is a critical step.
2. Not Understanding Business: Most entrepreneurs understand their product or service however they don’t understand the business of their business. When I say the business of their business, I mean the accounting component, the advertising and marketing aspects of their business, or the income tax responsibilities of operating their business. These things are the nuts and bolts of building and operating a successful business and errors in these areas are detrimental to the success or the business.
3. Pricing Their Products or Services Too High or Too Low: Most entrepreneurs have a difficult time determining how they should price their products or services. Cost is what you charge; value is what a potential client is willing to pay. In order to be in business and stay in business, pricing products and services appropriately is a must. Expenses and profit margins are two main variables that contribute to determining pricing. You have to make enough to cover expenses and to operate at a profit.
4. Underestimating the Amount of Time Required: Most new entrepreneurs underestimate the amount of time they will have to invest in starting and maintaining their business. It’s easy when you are sitting at your desk at work for 8 hours a day and when you get off, you can go home. This is not the case when starting a business. In the beginning, you may have to put in 10 to 15 hours days until your business is on solid ground. You now become responsibility for ensuring everything that needs to be done is getting done and if you have employees, you have to manage their activity and lead them. You may be the first to arrive and the last to leave for a while.
5. Not Having a Business Plan or Model: A business plan is an essential tool when it comes to starting and operating a business. Most entrepreneurs do not take the time to write or have a business plan done. A business plan serves multiple purposes. It is a tool to help run the business and it provides direction. A business plan is also important when it comes to securing funding. Lending institutions and/or investors like to see that a plan is in place as it pertains to how the business is going to operate and exist. Having a good business plan also shows that you have invested a substantial amount of time and resources to increase the probability of the business being successful. Not having a business plan may not be the overall reason why a business succeeds of fails, however it can and does provide a look into the future.