Starting a business is both fun and rewarding. It allows entrepreneurs to pursue their professional endeavors while taking control of their own financial destiny. While turning the idea of a business into a reality is relatively easy, creating successful, profitable business requires thorough planning, hard work, and dedication. To avoid common pitfalls of starting a business and increase their chances of success, entrepreneurs should follow these tips.
One of the most common reasons small businesses fail is insufficient capital. According to a study cited by The Hartford, 82 percent of all U.S. small businesses go under because they lack the necessary funds to perform their operations. Whether it’s a Small Business Administration (SBA) loan, bank loan, venture capital or hard money loan, entrepreneurs should secure enough capital to cover all anticipated expenses.
Form an LLC or Corporation
Any entrepreneur can start and run a business under his or her own name. Known as a sole proprietorship, it’s the most common business structure. Although it doesn’t require any additional work to set up, a sole proprietorship doesn’t protect the entrepreneur’s personal assets, including money, from business-related liabilities. This is why most financial experts recommend using either a limited liability company (LLC) or corporation. Both of these business structures offer protection of the entrepreneur’s personal assets from business-related liabilities.
Recruit Workers Based on Talent
As an entrepreneur’s business grows, he or she may offer jobs to family members. Unfortunately, this almost never ends well. Entrepreneurs should hire workers based on their talent and not their personal relationship with that individual. Aside from lack of skill, family members may feel entitled to certain privileges like taking time off whenever they want or making major decisions on behalf of the business.
Plan For Bad Months
Even if a business isn’t seasonal — landscaping, beach hotels, ski resorts, etc. — entrepreneurs should still plan for periods of low revenue. Without sufficient capital to cover expenses during these bad months, an entrepreneur may be forced to close his or her business.
Don’t Grow Too Quickly
Growing is a sign of success, but entrepreneurs should use caution not to grow their business too fast. Expansion typically requires more money for things like inventory, payroll, and building leases. For example, an entrepreneur who expands his or her retail business by immediately opening a half-dozen new stores may struggle to stay afloat until those additional stores begin to turn a profit.
Entrepreneurs shouldn’t let the possibility of failure hinder their dream of starting a business. Following these tips will allow entrepreneurs to create an effective business plan and gain a competitive advantage in their market.