Starting a business is far from easy; there are many things to consider and the pressure can cause you to make a poor decision which can damage your potential for success.
With 9 out of 10 start-ups failing and 20% of businesses ceasing trading within the first year, navigating your way through setting up a business can be tough, but being aware of some of the common mistakes often made by new business owners will improve your chances of your business succeeding.
Here are 10 common start-up mistakes and how you can avoid them:
1. Lack of Business Plan
The first mistake many new business owners make is not having a solid business plan. As one of the most integral steps in your journey, a business plan should explain your strategy and key business goals, indicating how you intend to get to where you want to be in the future.
Some key questions to think about include the following:
- What are you trying to achieve?
- Who are your customers and what needs are you fulfilling?
- Who is your competition and how are you different?
- How are you going to fund your business in the short and long term?
It’s also crucial to consider your mission statements as without vision or purpose, your business is more likely to fail. Ask yourself:
- Why am I doing this? – To help potential clients with a particular pain point.
- How am I going to do this? – By providing them with a solution (your product / service).
- How will I deliver this? – Consider your process and how you will deliver your product or service to your customer.
Having a strong mission statement for your business means that potential customers are more likely to buy into your ethos and want to find out more about how you can help them.
2. Incorrect Business Structure
There are many ways you can go about setting up a new business and so you should spend some time from the outset deciding whether you want to do so as a sole trader, a limited company or another type of business structure.
Solidifying your business structure at the initial point of setting up your company can save you from headaches later on down the line, as changing business structure from one type to another can be costly in both accounting and legal fees as well as cause subsequent tax implications.
Talk to an accountant who can advise you on the most suitable option for your business plan.
3. Rushing to Launch Your Business
It can be exciting launching a new business and while it’s understandable you may wish to get stuck in as soon as possible, being overly hasty can lead to all sorts of careless mistakes.
Errors on websites, communications or contracts will attract the wrong kind of attention and so you need to ensure you have the correct processes and systems in place before pressing the green button.
If you’re planning on hiring staff, you’ll also need to think about payroll as well as registering with HMRC as an employer.
It can be daunting at first, but with the right support from an accountant, you can avoid making errors which may impact your success in the future. Find out more information about some of the key considerations before launching a business.
4. Expanding Too Quickly
In a similar fashion to the point above, scaling your business too early can result in cash pressures and could be catastrophic for your business.
As your ranks grow and positions that were once filled by individuals now have a whole team working behind it, the need for organisation is paramount. Ensuring you stay on top of cashflow, budgets, cost estimates and sales inventory as well as making sure that everyone is working to the same goals is crucial to continuing your success.
Another mistake which often comes with expanding too fast is that while the demand for your products or services may be growing, the level of customer service remains constant.
Many smaller businesses build their reputation through outstanding customer service, and rapid growth can make it difficult to live up to this expectation. Ensuring you have the time and resources to adhere to your standards of customer service means you are much more likely to succeed.
5. Cashflow Problems
A crucial thing to think about before setting up a business is how it will be funded in both the short and longer term. Profit does not necessarily equal cash in the bank and without a steady cashflow, many businesses will fail.
Forecasting is therefore essential to the success of any business and should be a key part of the planning process.
As a start-up, it is likely you will have a large number of initial costs and therefore will need to supply your cashflow with funding until your sales have had a chance to grow. This often comes in the form of investments or loans. Once you have established a positive cashflow position, the goal is to stay there.
Most new businesses underestimate just how much cash they will need in the first 12-24 months and often fail due to money running out. Understanding how your cashflow is likely to work and planning for setbacks and contingencies are key ways to avoid hitting cashflow problems in the early days of setting up your business.
6. Lack of Understanding of the Market
Having a solid business idea is one thing, but without proper understanding of the market, your potential clients and how niche your service or product is, your business is unlikely to reach its full potential and may even fail.
Research research research! To avoid this mistake, analyse your market and target audience and build up a picture of where your business would sit.
- Who are your competitors?
- What will you be doing differently?
- What’s the demand for your product or service?
All these questions are vital in compiling an overall picture of the market and understanding how your business fits in.
7. Legal Issues
Getting your business off the ground requires addressing a number of legal matters such as business structure, tax implications and the correct type of insurance.
You might also need to think about protecting your brand with things such as copyright and patent protection, an area where many businesses fall short and end up facing legal issues later on down the line.
8. Staffing Issues
If you decide to employ staff, there are additional considerations you need to think about such as their health and safety, adhering to UK employment legislation and registering for employers’ public liability insurance.
You’ll also need to factor in payroll costs and software requirements which many new businesses fail to get right.
Enlisting the help of an accountant can make the process of hiring staff much easier as they will work to ensure you are fully compliant with both payroll and auto-enrolment legislation and will use HMRC approved software, leaving you to focus on the day-to-day running of your business.
9. Product / Service is Not unique
Your unique selling point (USP) is what will set you apart from your competitors. Without this, your business is likely to get lost in a sea of other businesses offering exactly the same thing.
To avoid getting forgotten about, ensure your business has clear messaging which sets out exactly why you are different and why your business is going to help customers fulfil their needs.
Once again, this comes down to market research and a strong business plan with clear goals and mission statements so be sure that you have finessed these areas before setting up your business for the best chance at success.
Getting prices right is another important area where many new businesses fall short. Too high a price and your product or service will not sell, but too low and profit margins may be unsustainable.
It’s a fine balancing act but one which requires (again) lots of market research and an understanding of demand.
Need a Hand?
Starting a new business from scratch can be daunting, but with the help of our professional team, you can be sure that you are in capable hands.
To schedule a free, no-obligation consultation with one of our team, give us a call on 0117 379 0810 or fill out a contact form to discuss your requirements.
- 10 Common Business Start-up Mistakes to Avoid - May 30, 2022
- Spring Statement 2022 – Key Takeaways - April 29, 2022
- Making Tax Digital for VAT April 2022 – Are You Prepared? - March 29, 2022
This post was written by Steph Roffey