As the economy has slowly recovered from the great recession, small businesses have created a majority of the new jobs. Because there has been an influx of new businesses created in recent years, there have also been a larger than the normal number of people starting businesses for the first time. These business owners tend to make mistakes more experienced business owners do not make. Here are 5 common mistakes many first-time business owners make that can limit the success of their business.
They do not hire strategically
Hiring and training employees are very expensive. Keeping those employees around is even more difficult. Employees have to be satisfied enough to not only take the job but also to keep them around long enough for the business to get a return on investment for the training it takes to get the employees up to speed. This should be on your mind when you are hiring any employee. Many times fit is more important that talent. Sometimes the right employee and the right fit are completely different. Hiring someone who is only going to leave your organization within a few months can have negative effects on the health of your business. For this reason, it is immensely important to find the person who is the right fit as much as it is to find the person who is most qualified for the job. You must be careful about how you approach this in the interview process. Your human resource professional should be a close ally in this process because there are some questions you can ask that put you at risk of a lawsuit. Asking generalized questions about where do you see yourself in five years is one way to determine what is on the potential employee’s mind. Most employees are going to tell you what they think you want to hear, but it can be a way to eliminate someone who does not have your business in mind for their five-year plan.
They do not budget for their own salary.
Many Start-ups frequently forget to budget for paying themselves. Depending upon how many owners are involved in the business and their different roles, this is something that needs to be well-thought out. Entrepreneurs who don’t write in a target salary for themselves are keeping their expenses and break-even point artificially low. There is not a magic way to set your own personal salary. There are so many factors that go into this decision. It is impossible for someone to tell anyone how much they should pay themselves. How much savings you have and how much you want to reinvest into the business are two big factors that determine what you ultimately pay yourself. Two easy ways to determine what you pay yourself is to look at your competition and see what they pay themselves or their highest ranking officials. The other is to set your salary to a percentage of profits. No matter the circumstances, it is best for your business to determine your own salary. Coming up with some way to determine your pay is a great way to set up yourself and your business up for success.
They skimp on commercial insurance.
Not all insurance agencies are created equally. The biggest difference is some are independent and can shop your policy with many different carriers. Some partner with only one or a select few carriers. This can drastically impact how competitively they can shop your policy for credits and discounts on premium. It also impacts how comprehensive the coverage they can obtain for your business. For this reason, it is important to partner with an independent agent who can shop your policy with as many carriers as possible.
Keep in mind, the price is not always the best way to go about determining which insurance policy to choose. This also goes for which agency or carrier to go with as well. Like many things in life, if something seems too good to be true it probably is. This is especially true when purchasing commercial insurance. In many cases, if one quote is dramatically lower than a competitor , it may very well be because they left out a policy that can leave your business at risk. It could also be that your business is not properly classified for workers’ compensation coverage. For this coverage there is an end of term audit and any discrepancies are due at that time. Misclassified companies may pay too much throughout the term and some who have paid to little will have to pay the difference at the end of the term. In many cases, this can be several hundred if not thousands of dollars.
They do not know their strengths and weaknesses.
Confucius was quoted saying, “To know what you know and what you do not know, that is true knowledge.” This is truly one of the most important things to realize before going into business for yourself. Business owners are usually unique individuals. They have to be in order to have the confidence to branch out on their own, instead of the most convenient route of working for someone else. This takes a special type of confidence in yourself and your abilities. That very confidence can be the downfall in many small businesses. For this reason, it is crucial to know first what you are good at and do it. At the same time, it is equally important to know what you don’t know and find out who is good at it. An example of this could be finding the right person to market your business or hiring an accountant with whom you trust to keep your books straight. For many small business owners; finding the right people to do what they cannot, are what ultimately determines the success or failure of the business.
Partner with an established accountant you can trust.
An effective accountant can be one of the best relationships a small business owner can establish. Accounting work can be very time-consuming and small inaccuracies can make for very large problems for your business. Most business owners look outside of their organization to provide this service for their business. As long as you find an accountant who is good at what they do and is someone you can trust then this can be a wise decision to hire an outside business to perform this crucial work for you. One of the main reasons this part of your business is so important is because of the amount of time it can save you and your employees to run the business instead of running the books. Also, another main reason to outsource this work is that there are many deductions that your business can take advantage of. Accounting firms work with a lot of other business owners on a daily basis. They know what types of expenses are and are not eligible for a deduction. There are many more deductions than you might think and an effective accountant can help you take advantage of these deductions.