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In the business arena, it’s a well-known fact that about 90% of businesses shut down within 5 years of starting. In the next 5 years, the remaining 90% of companies shut down, and the same is the case for the next 5 years. The reasons behind so many businesses failing are the common mistakes committed by business owners.
Few mistakes seem marginal to most but can result in hampering your business and finances. However, these mistakes are unavoidable, with the right steps, you can keep yourself away from such blunders. Let’s identify a few common mistakes that as a small business owner, you might commit. Identifying a problem is halfway through to the solution.
Not Creating a Budget and Following it : Creating a budget is a tedious task for most people. However, when it comes to business, not creating a budget is one of the most precarious of small business mistakes. A budget is not just about organizing the flow of finances, but it also organizes the flow of inventory and other required items. It helps in making an informed decision about various aspects of business, whether it is staffing or marketing. When you do not create a budget, these tasks become more challenging and can cause a situation of cash shortage. Especially the seasonal businesses have an even tougher challenge to maintain the cash flow in months with low sales.
Also, some business owners create a budget but do not follow it. This is as good as not making a budget as both have a catastrophic effect on business. As a small business owner, you can take the help of few apps which provide the facility of easily making a budget, track expenses, and review the financial performance.
Not giving Importance to Credit Score: Lenders use credit scores as an indicator of the creditworthiness of the borrower. When you consider availing a business loan, a credit score is the most important thing. As a business owner, your credit score is the first thing that will be checked when you apply for a business loan. A low credit score is the biggest roadblock to get credit. While having a good credit score increase not only the chances of getting a loan but also reduces the rate of interest. This means if you have a good credit score, then you will be offered a loan at a comparatively lower rate of interest.
Not taking Business Loan at Right Time: To maintain the flow of day-to-day operations of the business working capital is vital. Low cash flow gives rise to unpaid bills, scarcity of required products and materials, unpaid staff, etc. Working capital is the fluid in your business machinery, which keeps the business in function every-day. You can opt for an overdraft facility to maintain daily expenses.
Overspending: It is a general myth that significant investments are required to start a business, and one needs to spend a lot in acquiring equipment, marketing, skilled staff, etc. However, there are usually less expensive alternatives as well. Proper in-depth research is sometimes all which is required.
Being Unable to separate Business and Personal Expenses: Especially at the early stages of business separating business and personal expenses is very tricky. In the long run, this is a very crucial factor because the business to take-off efforts are required to maintain a separate record of personal and business expenses.
An effective solution to do this is to create a separate bank account for business and also avail a credit card for making business transactions. It will help in avoiding tax problems and solve cash flow issues.
Doing It All Alone: Many businessmen want to be a jack of all trade. It sounds exciting, theoretically, but in practice, effective delegation is what will work in the long run. It will help you spare time and perform those actions in which you are an expert and gives time to the crucial aspects of the business. Besides, it will also enable you to build a team for future success.
Not Enough Understanding of the Market: Business owners or entrepreneurs are mostly experts in their product or service and have a good understanding of the industry. However, a crucial aspect that they usually miss is asking themselves that, Will other people pay for their product or service?
The product or service needs to be tested to make sure that what you are providing is not just your solution for the problem but also a market-ready product or service.
Ignoring Intellectual Property: Intellectual property like trademarks, copyright, trade secrets, logo, designs are important aspects of a business. It helps the business in creating its unique identity in the market and also carries out its business in the most effective manner. Securing your intellectual property is one thing you cannot afford to slide; otherwise, your competitors can copy it and make a profit.
The journey of a business owner is full of ups and downs and failed plans. As an entrepreneur, you have to oversee every aspect of your business, whether it is with the utmost attention to details. Challenges of the competitive market and number of crucial areas to look after can easily put you in a disturbed or confused space of mind where you become more susceptible to commit a mistake. Identifying the common mistakes in business will help you keep a close gauge when it comes to these areas and avoid them. It’s not like making mistakes in business is a crime, you should never get into a mental space where you are afraid of making mistakes, but you also have to be ready to learn from them quickly.