Foregoing a Business Plan
The ancient Chinese warrior strategist and philosopher Sun Tzu once wrote, “Victorious warriors win first and then go to war, while defeated warriors go to war first and then seek to win.” This fundamental principle or maxim of military strategy is equally applicable to new business formation.
A common misconception among entrepreneurs is that business plans are only needed for purposes of raising funds from either banks or investors. However, even if you don’t require start-up capital, a well-crafted business plan is highly recommended as it provides a foundational blueprint for future success.
From formulating advertising strategies, to laying out business milestones, to projecting revenue streams – business plans help you cover all conceivable bases to help mitigate exposure and risk. In addition, and perhaps most importantly, a good business plan will include a market and competitive analysis that will assist you in determining whether your venture should be undertaken at all.
Not Forming the Right Business Entity
In an effort to get up and running as expeditiously as possible, business owners sometimes overlook the importance of setting up their legal structure. This seemingly small oversight can actually have significant consequences. Establishing the wrong business entity can lead to increased tax liability, added personal exposure, and unnecessary regulatory red tape.
Ideally, you will want to consult with a legal professional and an accountant before taking the plunge and filing your articles of organization. If this isn’t financially feasible, you should at least do your due diligence and research all the pros and cons associated with each structure. Ultimately, you are looking to choose the structure that best fits your needs and future plans.
Underpricing Your Products or Services
A common mistake that budding entrepreneurs make when starting out is to price their offerings too low. This is typically caused by not knowing market rates or by trying to undercut the competition. Unfortunately, this oversight can have highly detrimental impacts to your business down the road.
If you price too low, you run the risk of not covering overhead and operating at a loss. You will be working hard with nothing to show for it. In addition, when it comes to small business, attempting to undercut the competition with cheaper prices rarely works. It’s better to add value and then use that value to justify a higher selling price.
Lastly, keep in mind that if you make a mistake and price too low, it will be much harder to raise the price on your customers down the road. At the end of the day, it you don’t think your products/services are that valuable, how can you expect others to see the value of your offerings?
Not Having a Business Website
It might come as a surprise, but even in this advanced Information Age we find ourselves in, there are still many small business owners that do not have a web presence. Today, having a professionally polished business website is expected and is just as essential as having business cards.
While the traditional marketing methods worked in days past, today they are simply not enough. Digital efforts can be just as important and sometimes even more important than traditional approaches. People want to be able to find you and learn more about you by going online. Having this important touchpoint as part of your multi-faceted advertising strategy not only serves to enhance credibility but also works to bolster your media marketing efforts.
Choosing to Ignore Accounting
For many business owners, managing the back-end financial accounting of their enterprise can be tedious and time consuming. Let’s face it – accounting is not everyone’s strong suit. As a result, some opt to put their bookkeeping and accounting tasks on the backburner. Needless to say, this is an all too common mistake that can adversely affect your going concern in a multitude of different ways.
Accurate and timely bookkeeping and accounting practices are important for a number of reasons. Not only does sound accounting ensure you are meeting your tax obligation, but it also serves to enhance cash flow management, improve your ability to receive funding, and help identify financial red flags in their earliest stages. Most importantly, current financials can give you a holistic financial viewpoint of your business through real-time reporting.