Small businesses are becoming more and more popular. Many people are attracted to the idea of marketing their own idea and having control over their own products or services. Advances in technologies such as internet websites can definitely make the process of starting a small business easier.
However, there are many mistakes that can be made when starting or operating a small business. In many cases, these are due to a person being very eager to start their business, without being able to foresee mistakes in the long run. These can easily be avoided through proper planning and consultation with business and legal professionals.
Some common small business mistakes include:
- Not having a business plan: You’d be surprised at the number of entrepreneurs who attempt to create a start-up business without having a solid business plan. While small businesses can often be fun, that doesn’t mean they should be treated informally or without the proper business protocol. A proper business plan should cover important aspects like: the goals of the business; how the goals are to be achieved; the roles of various leaders and board members; accounting procedures and financial maintenance plans; division of property and assets; and preparations for business termination. The plan should be consulted on a regular basis- it might be even worse to have a business plan but not follow it in the long run.
- Setting Unrealistic Goals: A common small business mistake is to expect too much profit right at the outset- in other words, to “bite off more than you can chew”. Having a negative balance after the first year is often the result of poor goal-setting, as well as: not factoring overhead costs; renting too much space than is needed; taking out too large of a start-up loan; and not making room for losses. In short, the key ingredient when setting a business goal is to strike a realistic balance that includes losses and other “unpredictable” factors.
- Not Understanding how Liability works: Certain business forms will allow the personal business operators to be “shielded from liability”. This means that if there is business debt, a customer can’t reach the operator’s personal assets, but only the business assets. Many small businesses file as a limited liability company (LLC), specifically so owners can avoid personal liability on business debts. Other forms, like sole proprietorships, don’t offer the same protections. Choosing the right structure to file under is necessary to avoid certain losses.
- Engaging in faulty Hiring Practices in efforts to save costs: This is one of the most risky things a small business owner can do. In particular, engaging in discrimination or hiring practices related to illegal immigration can cause a business to fold immediately. Even worse, the employer can face legal consequences for violating hiring laws.
- Not understanding how to Transfer or Terminate your Business: This is equally as important as the start-up concerns. You should be able to see the plan the whole way through, including what should happen if someone offers to purchase your business. How much will each partner receive? What will happen to business property and company trade secrets? Your organization needs to be prepared to deal with these issues.
Also, you should have a plan for business succession (i.e., who will take over the business if the operators become incapacitated or deceased). Ending a business doesn’t always have to spell loss; in fact, selling your business at the right time could be the most profitable thing to do in some cases.
Most small business mistakes can be avoided through simply through thoughtful planning. If you have a well-drafted, professional business plan, most simple errors can be avoided.
Also, many business errors can be attributed to a lack of knowledge of the local business laws in your area. For example, you may have heard of a good business idea from a colleague. However, if they had success in their area, it might not work in your region if the business laws are different in your particular region. For example, zoning and land use ordinances can be drastically different, even within the same state or county.
Working with a lawyer can help you avoid some of the more common small business mistakes. You may wish to contact a qualified business lawyer before you even begin planning, so that they can help you draft up a sound plan for your operation. Also, your lawyer can help research the laws in your area, and can represent you in court if you need to file a lawsuit.