Are you dreaming of setting up your own business? Before you take the leap, read on for an overview of avoidable mistakes that start-ups make.
Over half a million Australians are involved in the early stages of setting up a start-up business and it is a well known fact that most small businesses fail within the first few years.
The question remains, what are they doing wrong? With over 25 years experience in Small Business Accounting, John Corias, senior partner of MAS Accountants, knows the mistakes to avoid when starting a new business.
“We have a lot of businesses come to us in the early stages and we are able to spot the red flags. Our company was the original accounting office specialising in small businesses in Australia, so we know what to look for and the most common problems small businesses face,” says John.
Here are John’s top five mistakes to avoid if you’re going to take the plunge:
Leave emotion and egos behind
Most small businesses are built from the ground up, so of course it is natural to grow emotionally attached. However, this is where so many people go wrong. “Being emotionally invested only sets you up for failure. It clouds your judgement and stops you from seeing clearly. These emotional investments may include the ego factor. Egos are bad for business. Usually, when high stakes are at play the egos come out. This happens more often than not in business. However, the ego can shroud judgement and can cause even the most sensible people to make stupid business decisions. When clients come in with a business or business idea that they are too personally attached to and are set in their ways, we have to give them the ‘tough love’ speech. Take a step back, assess it as business and find the best ways to move forward.”
When creating a business, funding is the key. Having the right amount of capital can turn the business from non-existent to booming, however lacking it is a common mistake most start-ups make. “Either the business was not able to get the bank loan approved, or they financed the business with short term capital rather than permanent capital or simply made business purchases that exceeded their means. It is important to manage cash flow and the best way to handle this is to make sure you have a financial plan, a business plan and that you are prepared.”
Underprepared/ Didn’t do homework
Some small businesses jump into the sector without giving it a second thought. With the entrepreneurial boom there are plenty of people coming up with ‘new business ideas.’ However, many of them do not have a legitimate plan in place to secure the future of the business. “Most businesses are making mistakes because they are not thinking things through. There is a lack of research which includes questions such as ‘how much rent am I paying?’ ‘Am I getting ripped off?’ ‘Can I get a better deal?’ I cannot stress how important it is to have a strong foundation and plan before you even think of starting a business. You need to plan for the financing, the structure, and a contingency plan for the unexpected hiccups.”
Seeking investors to fast track growth
Most start-ups want to grow quickly and seek investors to solve this problem. However this doesn’t always work in the business’s favour. “Finding an investor for rapid business growth is not ideal and it is much better to grow the business organically. Growing it naturally is more sustainable as you have invested the time to create the right foundations and systems to ensure long term sustainability. When mismanaged fast growth can cause the company to crash. Also, investors won’t be satisfied until they earn their cash back. This means they may push for rapid growth which won’t always match up with your business plan.”
Jumping into partnerships with friends
Partnerships with friends can seem like a fantastic idea when sharing a drink on a Friday night. However reality tends to be less than amicable. “Partnerships are tricky especially those with friends because it not only involves an extra element to the business but an emotional element as well. Before delving into a partnership, it is best to evaluate whether the other party has a different approach to the growth of the business, a different vision or different values. Partnerships work when all parties complement each other’s strengths. Remember that most business partnerships do not survive so make sure to think it through before going ahead.”