Like many people, you may dream of owning your own business, but starting a company is risky and challenging. In fact, up to one-third of small businesses fail within two years and up to half don’t make it five years. However, these businesses typically fail because they make common mistakes.
Personal and Business Separation
Many entrepreneurs do not separate their business from their finances. This is often because they often pay their startup costs with their accounts. However, this leads you down a very dangerous road. You see, when your finances are intermingled, you become personally liable for your business’s liabilities. In addition, it can be easy to overextend your finances because they are not separated.
Therefore, as soon as you start earning money in your business, you need to separate your personal and business finances. Get business bank and credit accounts. This allows you to better track your business income and expenses. In addition, it will help during tax time when your finances are separated.
Lack of a Business Plan
Many entrepreneurs are so excited to get started on their businesses that they fail to create a business plan. However, when they don’t create a plan, they don’t create a foundation for their businesses. This means that when they run into challenges or lack motivation, they don’t have a guide to get them back on track.
Before you even consider opening your doors, you should have a well-formulated, comprehensive business plan. If you have already opened your doors but don’t have a business plan, create one immediately. These tools help you with gaining investment or debt financing, but they also guide you in your daily decisions. You can also use it to recruit key talent.
Lack of Emergency Planning
Small businesses need rainy day funds. You never know when you will have to replace equipment, find new suppliers, refund customers, or repair facilities. Business owners who do not prepare for emergencies, especially if they aren’t earning regular significant profits, can lose everything from one incident.
Therefore, start an emergency fund. Keep a savings account that is reserved for unexpected expenses. You need to at least be able to pay your operating expenses for six months. As your business credit increases, you may also apply for a business card that can be used in emergencies.
Before you open or expand your small business, learn from those who did not make it. Study their mistakes and create strategies and make preparations that will help you overcome them.
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