Avoid These 5 Mistakes When Starting a Business

When it comes to starting a business there are plenty of ways that you can go wrong. Some of the early mistakes are trivial, like choosing the wrong font for your letterhead, an easy fix. Others can be quite costly. It isn’t only the monetary cost of having to pay for the fix, although that cost can by high. These five mistakes will affect customer relations, and your profitability. They affect your growth potential, not to mention how much time and effort you put in just to stay afloat. Worst of all they create conflict between you and your clients when you realize the mistake and try to fix it. No one likes to have these kinds of problems on their hands. Not only do we have fixes for these but a plan to feel less stressed and more optimistic about your business moving in the right direction. Manage these 5 issues well and you’ll soon have more time off to be with family and friends, grow a greater ability to travel, or have a larger bottom line.

First Mistake – Pricing Yourself Too Low

The first mistake that people make is pricing too low. It’s easy to see why. When you get those first few jobs or customers, that next job might be the one you need to keep the lights on. Just beyond that is where this problem creeps in. You’ve got a couple of good clients, or a steady flow of jobs, but the next job comes along you need to raise your price. Often the concern is… “how much?”. While there might be a small amount of math to figure this out, the final formula is extremely simple.

What exactly does total cost to you mean? The cost of the product or service if you hired a contractor that you respect to do the work. That includes your profit margin.

Let us use pencils as an example. If I make pencils and sell them, it’s the total cost it takes to make the pencils, materials, labor, building cost/unit, utilities/unit, payroll/unit, taxes/unit….I mean everything and then add 30% on top.

Why 30%? Because if you cannot handle the work, you don’t have the staff or the facility or inventory to handle the order or service or whatever it might be you can still outsource it. If you do contract it out, it will cost you time and money to find and manage the contractor. That cost included up front means that you have room to take on more work and scale as people come through the door looking for whatever it is that you do. This formula will make sure that you always have room, because you can always hire someone you trust for the next job. This also grows as your jobs, labor, and time invested per job grow; It has built in scalability.

Second Mistake – Negative Cashflow

Sometimes making mistake #1 can cause mistake #2. Simple right? You don’t charge enough, suddenly bills come due and the work you did all month doesn’t cover what it cost you to get the work done. If you follow the solution for #1 then it cannot ever be a reason for mistake #2. The second cause is not tracking when cashflow comes in compared to when money goes out. Let us say that payroll comes out of nowhere cause there’s less time in February, or you don’t do a great job of tracking expenses that only happen once a year. While the solution to this is also simple. It can take a little bit of time to get good at using it. It is called a budget. I know that dreaded word… budget. But I am not talking about penny pinching. I am talking about tracking when money comes in and out so that you know, for example that you need to hold extra money from the orders you get from the 15th to the 1st because you have bills AND payroll at the beginning of the month. There are tons of budgeting strategies out there but for some of you the best solution will be a professional bookkeeper. It is part of their job to help keep track of or even help manage your cashflow.

Third Mistake – Mismanagement/Bad Management Structure

This is the number one complaint I hear from small business owners, be they clients, friends, or people I interact with on the internet. Their complaint is that they work SOOOO many hours just to get by. Partially this is just the reality of starting a business. However, there comes a point where you should be able to scale back your hours. People get stuck hour after hour at the office because they cannot deal with not being fully in control. If someone cannot get their hands off the work, they are not running a business. They just work for themselves. There is a major difference between those two. If you find you have no time on your hands, or that you cannot step away from the business for a well-deserved break, you are either actively mismanaging your employees, or you build a management structure that uses you as a necessary element day to day.

This is NOT an easy fix and can take some time to get right. It is far better to start with good habits when building the business and I hope that is where you are. If not, we CAN fix this. If you are a business owner in almost any industry and you have more than 2 employees, yet you still spend most of your time processing orders, constructing product, or servicing clients. STOP! If you as the owner have your head down in the work that means that no one has their head up looking at the big picture. No one is doing quality control on your employees. No one is doing any of the many management and oversight tasks that help keep a business running and growing as it gets bigger. You need to give your day-to-day tasks to employees. You are meant to be running the business, and while this transition cannot take place overnight, it needs to become your focus for the immediate future so that you can get out of this hole and keep growing!

Fourth Mistake – Bad Hires / Bad Personnel Retention

This is a big one for people who are either still struggling with mistake #3 or have just started getting over it. You have gotten a hand full of employees but you’re struggling to get them to do work up to your standard, or they just don’t accomplish as much as you’d like. Admittedly, this started because you did not have any oversight. The problem arises as you work so hard to get the ineffective people to come up to speed. The killer is that ineffective workers hold back your rock star employees. Small businesses are often taken advantage of. It is hard to find good help that is interesting in working to help a business grow. Many times, good personnel, move on quickly if they realize there are still growing pains in the business. That is not their fault, they don’t own the business and have no obligation to help you grow. Incentivizing employees with their own growth and successes is the best way to keep the good ones around.

This may be the hardest solution for some of you to hear. It is not complicated, but it’ll be a tall emotional hurdle. You have heard the saying that what you give your attention to grows? Well, that is true for employees too. If you give all your time and effort to your “problem” employees, that is the group that is going to grow. You are rewarding problem behavior with attention and support. Complete opposite of what you want! The truth is – be slow to hire and quick to fire. I am not saying fire at the first sign of trouble, but once it’s clear that someone is going to be an ongoing issue, Get! Them! Out!

The second part of the solution is to put your attention in the right place. I know when you are growing and need help that it can seem like you are drowning in work and just need to get someone NOW. Please do not do this. It is far too costly in the long run. Better to turn down a little work now and wait. When hiring you need to only hire those who fit the attitude and culture, then teach them the work. If someone is ambitious and engaged in your industry encourage it. Beyond that, foster it; offer growth opportunities to your go getters. If you help your best people grow and be better, you will watch your business grow with them. They will do better work. They will work faster. They will reciprocate the effort you give them, by putting effort into your business. That is good for everyone.

Fifth Mistake – Overspending

Number 5 is not the worst problem to have. In fact, it signals that you have had some success. Hurray! You have fixed problems 1-4 or any combo thereof, and you are going to find that you have some money on your hands. It is tempting to take the rewards of all that hard work and start spending it for yourself. After all, don’t you deserve a new car? Shouldn’t you get that vacation in Europe now that you can finally take some time off. Well, yes, but maybe not quite yet. Drawing too much money out off the business too quickly leaves you without anything to keep growing.

No big deal. If you are dealing with this problem, you should be able to catch it quickly since you have solved the other 4 before now. Run your business fiercely fighting mistakes 3 & 4 by making those solutions business spending priorities. That will make it much easier to know how much you can safely take out for yourself. Just remember, take care of your staff and the work first and only take a slice from off the top and you will have no issue with this problem.

No Need To Worry

These five business mistakes are the top reasons why small businesses fail so often. If you can tackle these issues using the solutions provided you will find yourself growing out of that “small business” title in no time. You can do far more than work for yourself. You will be running your business to embolden others and help them grow into bigger and brighter futures. We often start businesses because we enjoy solving a particular problem for others. When we change from working in a business to working on a business, we transition from being the individual problem solver to helping our employees solve the problems. Keep that in mind as you use these five strategies to tackle any problem and you will be well on your way to owning a profitable, and positive workplace.

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