The 5 biggest mistakes in your first year of business
Not getting cash flow right
Cash flow is the number one stumbling block all small businesses face. People tend to worry about profit, but what about the flow of cash that’s going to keep your business afloat?
In a Guardian article on the topic, small business expert Agnes Cserhati “estimates that 90% of the SMEs she works with do not have a cashflow plan from day one, despite having forecasts of profit margins for years ahead.”
Problems often creep in when clients pay bills slowly, so institute a 50% upfront payment or offer discounts for clients who pay invoices swiftly.
Entrepreneurs hate to admit it, but the future of any business is contingent on hiring well. Bad hires can cost you a lot of money, waste your time and worse, they might lie about the work they’re doing. Make sure you check references when making the call on someone, and if you hear bad things, don’t take a risk. Chances are they’re unlikely to turn over a new leaf.
Once you’ve made your hires, refrain from micromanaging them. Businesses grinds to a halt the minute you ask to see every piece of work going through the door. You might think this is a necessary step in quality control, but you’ll end up making staff feel hesitant to take decisions and they’ll drag their heels while worrying about your reaction constantly. We all mistakes, so loosen up a little.
Undervaluing your service
If you’re a small business owner, be aware that you’re probably undercharging for your service. This might seem like a neat solution to the problem of acquiring clients who would ordinarily choose more established companies, but if you believe in the quality of your output (and you probably do, since you’ve created a business out of it!) stick to your guns. People don’t have a problem paying more - in fact, they respect businesses that ask for a lot and deliver even more in return.
Getting into business with someone when there’s no fixed deal in place
Starting a business can be great fun, but if you’re going to do business with a partner, you need a contract in place. A contract is there to ease the fall when relationships sour, priorities shift and life takes its natural course.
A contract can be acquired by simply visiting an attorney. The terms are laid down and you sign on the dotted line.
Don’t wait a year to make it happen, either. By then, you’ve already formed a relationship with the person(s) and it’s harder to be objective.
Lastly, equity isn’t enough on its own. There are lots of ways majority shareholders can dilute the value of your equity, so get everything down in writing before you embark on a venture with someone else. You might be on friendly terms now, but contracts are the only way to do business with someone.
In today’s world, it’s easier than ever to get up and running on a small budget, and yet so many first-time businesses continue to overspend. Will a fancy office, new furniture or expensive software really make a difference to your bottom line right away? Instead of skimping on quality staff, skimp on the nonessential stuff that you’ll end up paying for every month. An office might seem like a non-negotiable, but there are places you can rent for meetings, meaning you don’t need a set up in the most expensive part town.