According to the Small Business Administration, one-third of small businesses fail in the first two years and one-half fail within the first five years, statistics that might discourage even the most determined potential entrepreneurs from trying to realize their business dreams. But avoiding the five most serious mistakes entrepreneurs can make in the startup phase can go a long way towards helping them achieve success, CNNMoney reports.
The most deadly errors small business owners make in their first year are:
1. Too Little Cash
âThe biggest is issue that most entrepreneurs have is money â they're not properly capitalized,â says Douglas Long, owner of a consulting firm that advises entrepreneurs. Long tell his clients that they need approximately three times what they think they need at the beginning to provide them with a cushion in a possible economic downturn.
âThe real thing I missed was anticipating my cash needs and being able to weather the first year,â Steve Hockett, now a successful franchise consultant.
2. Thinking Small
Even when a business has limited resources, it's not a good idea to show it. Harpit Singh founder of Intellicomm, Inc., in Philadelphia tells of a meeting he and an associate organized at a potential client. âI could see the excitement in our service quickly dwindle...when we mentioned that we were a small business with limited resources. From that day on I vowed never to let our size hold us back.â
Singh learned to focus on the advantages a small firm offered in the industry.
3. Skimping on Tech
Make sure employees have the latest communication technology so they can respond quickly to customers. Small companies can often adopt new technologies more easily than older companies.
4. Underestimating The Importance of Sales
Singh says that most of the entrepreneur's attention should go to sales and revenues. Every company needs a dedicated sales pro and if that is the business owner, he or she needs to develop sales skills, Long says.
5. Losing Focus
The business owner needs to have a clear vision of everything the company does and what it will take to make each part of the business a success, Hockett says. If he had put together a detailed plan for his franchise, âI would have waited longer until I was in a better cash position to start. But I was impatient. I made a decision based on emotion rather than fact.â
Even when the new business owner faces the prospect of bankruptcy, due to debt, or because a franchise agreement has become burdensome, or too many customers are not paying their bills, it is still not too late to turn the business around and get out of trouble says Jeff McKeown, owner of an Express Personnel agency in Racine Wisconsin.
McKeown said that in the beginning he had accepted any and all clients, even those with bad credit. âMany clients did not pay their bills and several declared bankruptcy with huge payments to me outstanding,â he explained. He found himself seriously in debt to his franchisor in 2003 and had maxed out all his credit cards.
With the help of a consultant, McKeown took drastic measures to save his company. He fired 30 percent of his customers, raised his prices and established minimum gross margins and strict credit terms. He is expecting to net $400,000 to $500,000 in 2007.