Starting a new business is tricky – there’s a lot to consider and a multitude of decisions to make.
While there’s no foolproof plan for success, here are some of the more common mistakes small business owners make – and how you can avoid making them yourself.
Not doing a business plan
Planning may be tedious at the best of times, but it’s crucial to invest time thinking about the steps to maximize your profit.
Even if you think your company doesn’t need a traditional ‘business plan,’ implementing one can be incredibly useful to help track how successful you’ve been at the end of any particular period.
Putting the wrong business structure in place
The type of structure you choose will affect certain aspects of how you conduct your business and your taxes.
Becoming a sole trader or one-half of a partnership is perhaps the most straightforward path to setting up your own business.
A sole trader has fewer responsibilities than a limited company owner, but there are some advantages in accepting these obligations.
A limited company will protect your personal assets and tends to be the most tax-efficient. And in some industries, clients are unlikely to consider a sole trader as a viable business.
Failing to carry out market research
Market research is crucial when running a business, however small it may be, so it’s essential to establish if there’s a gap in the market so your company has the chance to be profitable.
Make sure to keep an eye on your competitors (don’t worry, they’ll be doing the same to you). Recognising what similar companies to yours are doing will enable you to emphasise your unique selling point and differentiate your business from potential rivals.
Employing the wrong people
The people you employ to carry out admin tasks and provide customer support (often the ones who will keep your company running) are often highly underrated.
Establishing a solid team, you trust to carry your business can make the difference between success and failure.
It’s important to note that a bit of motivation also goes a long way. So, for example, you should reward staff when they meet targets, and offer incentives for good work. These are good examples of strategies to ensure your team wants your business to succeed, and they, in turn, will then work harder to achieve this success.
Not thinking about future funding
It’s common to initially use personal or family and friends’ cash injections to start a company, but more capital may be needed in the future.
If this proves to be the case, banks or potential investors will require proof that your business is worth investing in or providing equity funding.
Establishing a business plan will be essential to attracting potential angel investors or financial organisations.
Running out of money
This can be a common issue that affects small businesses, particularly in the first few years of trading. Even though it may be tempting initially to offer payment plans to entice new customers, here are the best ways to avoid any shortfalls:
- Keep on top of any outstanding invoices
- Agree to upfront payment terms
- Task someone with keeping them organised efficiently
Establish ‘debt management’ services as the most cost-effective way of chasing any payments that are consistently late.
Listening to poor advice
The best way to reduce any time-consuming stress is to hire an accountant, especially keeping in mind that time is money.
Most limited companies will use an accountant, while sole traders will also benefit from the service as it allows them to concentrate their energy on their business.
Not keeping to deadlines.
The director of any business is ultimately responsible for meeting their company’s statutory and financial deadlines, regardless of whom they have delegated the task of paying taxes and submitting forms.
There are consequences of failing to keep to deadlines, including the following:
- You may accumulate fines of up to £5,000 for late submission of your annual return to Companies House.
- Any missed tax deadlines will accrue fines from Her Majesty’s Revenue and Customs (HRMC) with the possibility of prosecution.
- Your company could also be struck off the Companies House register. If this happens, the director becomes personally liable for the company, and any company-owned assets will become property of the Crown.
If you would like more advice, don’t hesitate to get in touch with the Future Strategy team today.