NASE News

Top 5 Mistakes Small Business Owners Make

The path to starting a small business is rocky. Whether you’re establishing yourself as a freelancer or trying to get a new business up and running, there are a few trip hazards to watch for along the way.

Some mistakes are small, and part of the learning curve for self-employed careers. Others can leave you flat on your face if you aren’t watching where you step.

One in three businesses in the United States fail in their first two years, according to the Small Business Association. After five years, that proportion rises to 50 percent; by year ten, 66 percent of businesses have closed up shop. Many of those failures are due to preventable circumstances.

Below, the National Association for the Self-Employed (NASE) outlines five of the biggest mistakes to look out for on your small business journey.

Mistake #1: Winging it.
Benjamin Franklin said it best: “If you fail to plan, you’re planning to fail.”

A business plan is an essential guide for decision-making and growth. A business plan can be long and detailed or begin as a brief “executive summary,” but the point is the same: Your startup has a roadmap about how you’re going to make it in the coming months and years.

Need some help getting started? NASE offers a Startup Kit to guide small businesses through the process, and BPlans.com offers an array of example business plans and free templates to help you get started.

Market research is critical before you jump in. According to small business research firm CB Insights, the most common reason businesses fail in the first few years is lack of market demand — a sign that far too many people launch businesses without investigating whether they will have a market for their wares.

Market research means thoroughly surveying the landscape and ensuring you have a place in it. Ask the following questions: 

  • What is the demand for your services? 

  • Who are your competitors? 

  • Who are your potential customers? 

  • What hole will your product or service fill that others can’t provide, or do as well as you? 

  • How will you raise your business profile to reach customers?

The answers to these questions come from more than a personal hunch or the support of family and friends. Consult demographic data from the Census Bureau, read into the economic history of the area for your particular niche, and conduct a survey of potential customers outside of your personal circle to get a more accurate picture.

Market research is a central component to your business plan. It will outline your product differentiation strategy, the key to gaining a competitive advantage and attracting customers, investors, and lenders.

Legal details also require some research and attention. Are you forming an LLC, or incorporating as an S corporation? Different legal forms correspond to different types of business and employee/owner structures. Will you be working solo or hiring others?

The choice determines how you file taxes, but it’s more than that. “From a tax standpoint, the entity form you choose is not going to make a material difference in the amount you pay,” says NASE National Tax Advisor Keith Hall.

“Choosing the correct structure should not be a tax decision but is more about liability issues, employee issues, how you see your company in the future and other issues. It’s all about planning.”

Confused by the legal details? NASE offers expert advice in business strategy, legal, taxes, accounting and more to all members.

Mistake #2: Trying to do it all.
Most small business owners start as one-man or one-woman shows. They do the work, field phones and emails, maintain their own websites and marketing, and manage invoicing and taxes. As your business grows, the pressure of these responsibilities can cut into the time spent actually making money.

One of the biggest pitfalls for the self-employed is failing to delegate some of this work. Often, it’s also one of the hardest things for a business owner to do because of the sense that you are ceding oversight over a critical part of your business.

But over the long haul, you’ll get burned out and the quality of work — not to mention your health and quality of life — will suffer unless you learn to delegate. Waiting too long to hire has a ball-and-chain effect on the productivity of a solo entrepreneur.

Delegating can mean hiring a full-time employee or outsourcing work to freelancers, but it doesn’t mean you’re handing over the reins to someone else. Delegation is all about leadership — identifying the tasks you can delegate, finding the right people to do the work, and training them properly.

Specializing is another vital decision that small business owners tend to underestimate. For example, a contractor may be highly skilled in computer programming and app development, and because they are familiar with IT, they may also pitch themselves as a computer technician, IT administrator, cyber-security expert, and more. The next thing they know, instead of landing mobile app development jobs that really fit their skills set, they’re crawling under cubicles in an office managing hardware networking.

Being too diverse in your service offerings can weaken and distract from your core skills. Don’t pitch yourself as the neighborhood handyman if that’s not why you launched your business. Focus on what you really want to be doing, become an expert in your niche, and sell those specialized skills.

Mistake #3: Neglecting marketing.
The market research conducted prior to starting a new business is only half of the battle. You may have identified a segment of potential customers, but reaching them is a whole new ballgame.

Marketing is an investment. If you don’t invest in marketing you’re shooting yourself in the foot. You’re also essentially ceding the field to competitors who are marketing where you aren’t.

Build a home base on the internet. You need a website and Google Business account. When a potential customer searches for the services you provide, you want your business listing to come up. Not building a website is like opening a business without bothering to put a sign out front. Neglecting Google registration is like having an unlisted number and expecting your customers to guess.

Reach and manage your audience. Beyond Google search, customers research services and products in different ways: they search directly on smartphone map applications, on Facebook or other social media. They also browse through Google, Yelp, and Amazon reviews before making their decisions.

Effective marketing is built on knowledge of your audience. Know who and where your customers are, and what they are looking for when they come to you. Are your customers on Facebook? Do they base decisions on star-ratings in Google results? The best way to get answers is to ask customers how they heard about you.

Such information is key to determining what kind of advertising is right for you. Traditional ads like print, radio, or billboard still may be necessary or even primary channels — you don’t know until you get a good sense of your customer demographics and shopping habits. You may discover you need to establish a more engaging presence on social media instead.

Mistake #4: Selling yourself short.
Underpricing services is a classic beginner’s mistake in small business. The logic is understandable: you’re a new entry into the market, so if you want to draw some business away from established competitors then the best way to do that is offer the same services at a lower price. Right?

Underpricing may do just that — and still result in failure. Why? The tactic ignores the reality of the market a business is entering: prices are often set where they are because that’s what it takes to cover costs and still make a living. When you try to win customers on the basis of undercutting others, you’re inadvertently consigning yourself to a bare-bones existence that may not pay your own bills.

It creates a situation in which winning new business has the effect of slowly sinking into unsustainable workloads and closing up shop.

Research industry benchmarks and competing business rates to set prices that are reasonable and realistic for both you and your customers. Rather than low-balling your worth, differentiate yourself and consider what value you bring that is worth your fees.

Mistake #5: Avoiding paperwork.
Get agreements in writing by sending proposals that are signed and dated — before work begins. This is absolutely vital to protecting your work and ensuring you are paid.

Paperwork is not always pleasant, and initially it may feel demanding to send written contracts to a new client. But new freelancers and contractors often learn this lesson the hard way:

Verbal agreements don’t mean much when it comes to a dispute over the scope of services a business provides to a client.

The same holds true for your business partners. Come to an agreement, make a plan, and put it in writing.

Business partnerships require written agreements, even among good friends. A partnership agreement spells out each partner’s rights and responsibilities, and what becomes of the business and money when one partner exits.

Outline work in invoices. Paperwork is part of every stage of business, including wrapping up a job and sending a bill. Invoices don’t have to be fancy, but they need to include your own business information, the client’s information, a description of the work performed and breakdown of the cost, and payment terms.

Protect intellectual property, when eligible, by applying for copyright or patent protection. Register your intellectual property with the government, and spell out your ownership in contracts.

If the legalese and paperwork are too intimidating, consult NASE’s experts.

All small businesses go through beginner’s mistakes, but those mistakes don’t have to be the beginning of the end. A planful approach and consultation with seasoned business pros can make all the difference.

Courtesy of NASE.org
https://www.nase.org/about-us/Nase_News/2020/05/29/top-5-mistakes-small-business-owners-make