Small Business Mistakes

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Small Business Mistakes

Running a business can be demanding, grueling, overwhelming but also exhilarating. If you own your own business or are considering starting one, it will probably be one of the most important and risky decisions of your life. Management can be so relentless that it is easy to get caught up with the day-to-day responsibilities and pay no attention to broader factors that could make or break your business.

Here are the typical mistakes that you want to avoid as a small business owner:

  • Having impractical aims. Without being realistic about what you are hoping to accomplish with your business, you will end up with a lot of disappointment and frustration leading to your businesses early demise. Make sure that your goals are SMART: Specific, Measurable, Accountable, Realistic and Time-Sensitive. And have SMART goals for the short (1-3 years), mid (4-6 years) and longer-term (7-10 years).

  • Not producing a business plan. A business plan is essential, even if you are not seeking startup capital from investors. They help you in pulling your head out of the clouds and getting a grip on reality. A good business plan should include at the very least a complete analysis of your target market and competition, financing needs, cash-flow estimates, and a break-even analysis.

  • Under-funding. Not enough startup money can force you to tap into personal savings or go into unplanned debt and jeopardize your personal financial stability. Drafting a well-researched business plan can help you understand what you will need to do for your business to come through the startup period and avoid putting yourself and potentially your loved ones into a precarious position.

  • Poor risk management. Better to be safe than sorry. Consider the worst things that could happen to your business and then insure against them. Make sure you cover all of your assets, including space, equipment, yourself and any other key employees. This means you must allow for, and then buy, adequate property, casualty, liability, disability and life insurance.

  • Not tracking income and expenses. It is very important that you know where every dollar your business earns comes from and where every dollar goes. Not doing this is the same as driving a car blindfolded; you are bound to crash quickly. Controlling your cash will help you identify where to cut back and where to invest more. Many entrepreneurs use accounting software but you should at least use some kind of spreadsheet to track your cash flow closely.

  • Not re-investing enough in your business. You have to spend money to make money, right? It is difficult to see the value in reinvestment when income is lean and expenses are high, but that is normally when you need to reinvest the most, whether it is in hired help or better marketing. Investing your money in systematic processes and customer experience improvement is imperative for your long-term success, even if it means making sacrifices in the interim.

  • Insufficient cash stash. Investing in your company is key, but it is also important to have a cushion, even when times are good. This insulates you if you hit an unexpected rough patch and your income plummets. To avoid the prospect of going into debt or sacrificing assets, aim to set aside at least six to twelve months worth of operating costs in a separate savings account; ideally in addition to a personal emergency fund.

  • Being too much of a risk-taker. You are a business owner. You were born to take risks but that must not mean you endanger your hard-earned profit, and the business itself, by choosing overly-aggressive investments. When you are at break-even, and have enough cash in your emergency savings, you should still be sensible with your investment strategy. That will require you investing in a well-diversified portfolio of investments that will offer solid growth opportunity and protection against significant losses.

Owning your own business might be the hardest but most rewarding experience of your life. Most that try will fail, but if you know what not to do, and careful with your business planning and its execution, then you are far more certain to be one of the success stories.

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A Successful Business

There are three primary yardsticks for determining the progress of any business:

  1. The organization has the correct products and services that are requested by consumers in the current market.

  2. The company is concentrating on a niche within the wider market and its marketing, advertising, and products and services present a consistent message.

  3. The small business can manage using its own funds and has controls in position to ensure this continues.

Being successful at any one of these will not be enough; just as any two will sooner or later mean a decline in the business. The organization should be established so that it systematically transforms customer demand into money. Knowledgeable company owners focus on being in the correct position at the correct time whilst unsuccessful owners look on enviously, hoping they might eventually enjoy similar good fortune - but, the truth is, they never will.

To experience success in your business you must have goods and services that provide distinct benefits to possible clients and your advertisements should focus on promoting these benefits. It is important that you are aware of what your potential customers are requiring, that they might not be getting in the current marketplace.

The overwhelming majority of organizations are not in a position to benefit from being in the perfect place at the perfect time as they did not complete any market research and many are already bound to be in the incorrect place at the incorrect time. These failing companies tend to have, and require, far more financing than prosperous companies, and they are always frustrated by their cash flow with the bulk of their reserves already pointed in the incorrect direction. They have:

  • More inventory than they might possibly ever sell in an enormous number of unconnected product groups.

  • Far too many smaller purchases from a massive inventory, meaning the business requires more employees that it can afford.

  • A lot of money that is pledged into sections of the venture that are stagnating.

You need to focus on market research to collect material about your target markets and clients. Your market research is a key part of preserving your competitive advantage and your awareness about what your competitors are up to:

  • Precisely what is your pertinent product market comprising all those products and / or services which are judged as interchangeable or substitutable by purchasers, in respect to the products characteristics, prices charged and their expected use?

  • A pertinent geographical market spanning the area within which the company will be involved in the provision of goods and services and in which the circumstances of competition are sufficiently similar.

It is vital that you get the financial backing of your organization correct before you launch:

  • Could your organization open if you had no external financing?

  • Is your accounting and documentation accurate? If not, then you will soon find how crucial it is that it must be.

  • Have you scrupulously thought about every payment you will be making and how spending the cash benefits your business?

  • Never purchase anything for new if you can buy a used item significantly cheaper.

  • Make certain that you conserve your cash and keep your outlays as small as you can in everything you do.

Hold on to your money. Money is at the heart of any business.

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Using your business plan as a Sat Nav.

Your business plan will be the vital road map for your venture. Have you clearly set out what makes your business different from the rest? Demonstrating this could make certain your company is profitable and increase your leverage over the other organizations in your sector.

Planning for your venture is concerned with establishing what goes into making sure your business succeeds and to make certain that you get the highest returns from your assets; generating income from all of your opportunities while ensuring you take whatever steps you must to minimize your risks.

The time you take in working on, and then developing your business plan is vital, as the process of developing the plan forces you to look at the areas of your business where you are not so knowledgeable and therefore forces you to consider the whole thing thoroughly.

It is commonplace for businesses, particularly start-up businesses, to have a number of formats for their business plan:

  • A brief executive summary of your company that will be generally used to get the attention of likely financiers, consumers or even your employees.

  • A slideshow presentation with a demonstration of your companies merchandise.

  • A thorough, meticulously created, business plan for external shareholders - a thorough, well written, and efficiently organized business plan targeted at potential backers.

Your business plan is your sincerely prepared description of your businesses future; a written report that sets out what you need to do and how you will do it. When you write some wording on a PC defining your organizational systems, it means you have begun producing your business plan.

Business plans are principally strategic. You commence here, at a certain time, with a few resources, some money and certain unique abilities, and your business plan sets out where you want to end up, at a date in the future (usually three to five years out) at which time your business will be functioning smoothly and automatically producing a positive cash flow based upon the system you have clearly established.

Your business plan clearly displays how your organization will travel from where you are now to the place that you would like to be.

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Great Businesses are planned that way.

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