Approximately 20 percent of small businesses will fail within their first year. When you consider that there were about 30.2 million small businesses in the country as of 2018, you can begin to get an idea of just how serious this situation is. It means that every year, about 6.04 million small businesses celebrate their grand opening… and their “going out of business sale” within the next 365 days.
Yes, it’s true that some of these were doomed from the start — either they were a product in search of a marketplace, or their potential audience just wasn’t as large as those entrepreneurs initially thought it was. However, many of these small businesses prematurely shut their doors because their founders fell into a series of traps that are all-too-common.
So, what are the most common mistakes you see when businesses are just starting out?
The Biggest Mistakes to Be Aware of When You’re Just Starting Out
- Not engaging or working with a CPA at the outset of the business, before the business launches. Businesses can fail within the first year if there is no proper planning, budgeting, and forecasting. You could easily miss very important items if you’re not working with a CPA.
- Work with both your attorney and your CPA to help you choose the business right entity. These two professionals should work together to make sure that your legal entity correctly fits your needs, as well as your taxable entity.
- Tax planning should be part of the business startup process. Failing to properly account for taxes can cost thousands of dollars in unnecessary taxes in the years to come.
- Looking at their revenue as determining their success WITHOUT taking into account all their expenses.
Staying Out of Trouble Before You’ve Even Started
- Spending too much time behind the computer instead of meeting their clients and making them happy.
- Avoid buying too much, too early — all in the name of ‘progress.
- Check your books on a daily basis. If you’re aware of a small issue today, you can stop it before it has a chance to become something far bigger (and more expensive) down the road.
Are all of these issues serious (and potentially fatal) for even the strongest of new businesses? Yes — but it’s also important to keep in mind that a problem is just a solution waiting to be found. The lion’s share of these issues can be circumnavigated entirely by partnering with the right professional early on in the process.