Entrepreneurs have the courage to put their livelihoods on the line and start or run new businesses. This often comes with huge personal and financial risk, which is of course offset by potentially large rewards. Even experienced entrepreneurs and business owners can make potentially crippling mistakes along the way.
With this in mind, here are some common mistakes that can kill a business before it gets off the ground.
Capital Funding is the Number One Issue Facing Business Startups
Financing a small business is no joke. Whether you are seeking a small business loan, angel investment, or putting up your own capital investment, the biggest mistake we see is when entrepreneurs underestimate how much startup capital they will need. This is tempting because small business owners believe they will have a better chance at funding approval if they ask for a lower capital amount.
Unfortunately, this is not worth the risk. Businesses need money to operate, and asking for less than you need will not do your business any good. It is better to ask for the correct amount and face loan rejections than to alter your requests to seek a higher likelihood of approval.
How Setting the Wrong Price can Kill New Businesses
Let’s say you own a coffee shop. You are running a high volume, low cost per transaction business model. This is not an inherently poor business model. However, it does require that you charge the correct price to keep your margins optimal and your customers happy. It can be tempting to price your standard cups of coffee aggressively to position your business well against the competition.
That sounds great on paper until you are losing money on each cup of coffee you sell. Suddenly, that difference must be made up elsewhere. Those donuts which used to be reasonably priced now must go up by 30-40%. This is all in addition to credit card transaction fees potentially eating into low-value transactions.
Setting your prices fairly and aggressively is absolutely vital for small businesses.
Small Business Fail to Find Their Niche in the Market
Finding your business’ place in the market is not a luxury, it is a necessity. This includes understanding customer demand, your competition’s market share, price of materials, and other industry trends. Let’s go back to the coffee shop example. If the price of coffee as a commodity is rapidly rising, you must account for that in your business model. At the same time, if your customers are beginning to favor other healthy beverages over traditional coffee, perhaps a deviation from the traditional coffee shop business model would be wise.
Understanding your place in the larger market also comes down to branding. What separates your business from the competition? This is frequently referred to as your brand identity. Within this is brand personality. Your brand personality can convey sophistication, energy, integrity, quality, or any other identifiable traits with which your customers will associate your brand.
Overspending or Underspending Leads to Startups Closing Their Doors
Going back to insufficient startup capital, insufficient spending and investment can be problematic for startups. Of course, overspending recklessly causes its own host of problems. So where should you land?
Instead of viewing business funds as something to be hoarded or as free money, consider thinking of business investments as mini startups in and of themselves. Work on a business plan, identify the risks vs. rewards and run the numbers. If this was a new business all on its own, would it be successful? If so, it might be a great financial investment for your company.
Small Business Owners Try to do it all Themselves
Last but most certainly not least, small business owners have a propensity to do it all themselves. While this may seem like a romantic notion, the fact remains that all business owners need to delegate at one time or another. The key here is understanding what and when to delegate. Keeping your finger on the pulse of all business activities for the first few weeks, months, or even years of your business is understandable. Remaining involved in every single aspect of the business indefinitely is probably not the best use of your time.
When the startup is ready to expand, find employees and/or business partners whom you can trust. Then, and here is the hard part, actually trust them! Nobody can do this alone. And once you are able to relieve yourself of some of the minutiae of your business, that will free you up to explore new possibilities both within and outside of your business.
True Merchant Helps Startups Accept, Secure, and Regulate Payments
Whether you are looking for a small business loan or a merchant cash advance, True Merchant is here to help! Speak with one of our representatives for a transparent explanation of how a loan or merchant cash advance could work for your business.
We will walk you through the application process, and even get you set up with a repayment program that works for you. At the end of the day, our job is to serve the needs of our clients. We are proud to offer funding which can help your business grow!