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Five common mistakes that can sink a small business (and how to avoid them)

Entrepreneurship has been booming since the pandemic. In fact, according to the US Census Bureau, an incredible 5.4 million new business applications were filed in 2021. This number broke the previous record of 4.4 million set in 2020 when the COVID pandemic began. .

The reasons for this trend are many. Many people who decided to start their own business were those who had lost their jobs due to the COVID crackdown. Many Americans have begun to think philosophically about their lives and have decided to leave their current careers and find a new path. They decided there might never be a better time to change course and pursue their dreams of business ownership. Some of them have used government stimulus checks to launch their new businesses.

While entrepreneurial optimism abounds, the reality is that approximately 20% of small businesses fail in the first two years, and about half fail within five years. The unfortunate part of this reality is that many struggling small business owners make the same common mistakes.

Not doing enough research. Some people think they have a great business idea, but they may be acting more on impulse than a reasoned argument for success. For example, choosing a less attractive location because the rent is cheaper could have a devastating effect on income.

“Understand your industry,” says Mari Tautimes, successful business owner and author of #KeepGoing: From Mom of 15 to CEO and Successful Entrepreneur. “Make extra effort to analyze the market and what you are up against. If you start your startup without knowing the history and mission of your competitors, it could lead to your failure.

Before launching a business, it is imperative to prepare a well-researched professional business plan that provides a 3-5 year roadmap for the business. It should include an executive summary and a full explanation of what the business is, who runs it, who the target audience is, how to reach that audience, market competition, financials, and other information.

Lack of capital. Before starting a business, estimate the amount of money you will need to get the business off the ground…then double it! Even the most seasoned businessmen will face costly delays that could mean another month of paid rent with no revenue generated. We’ve seen over the past few months how much the costs of things like gasoline, utilities, materials and labor can skyrocket. Make sure you keep enough cash on hand to get you through tough times and/or seasonal slowdowns.

Seed capital can dry up quickly, and you certainly don’t want to have to go back to the bank or another lender for a second. small business loan in a relatively short period of time. Coming back and asking for more money after you’ve already gotten a loan will likely signal that the owner hasn’t planned enough or that the business just isn’t viable. Be sure to borrow enough money to start the business and sustain it through the often difficult first few months.

There are several types of lenders to choose from. Big banks are often the first lenders budding entrepreneurs approach. After all, they have the most well-known brands and most often have an extensive network of branches. However, big banks with $10 billion in assets are currently approving about 15% of the loan applications they receive, according to the latest. Biz2Credit Small Business Loan Index (April 2022 figures).

Small banks grant about 20% of their funding requests. Regional and community banks are often able to provide SBA Loans, which are supported by the federal agency. These loans are attractive, but because a government entity is involved, there is more paperwork involved, which can be time consuming.

Non-bank lenders, including factoring companies and cash advance companies, can be a viable source of funding and are often more willing to lend than banks. It is important, however, to keep in mind that they charge significantly higher interest rates.

try to do everything yourself. Entrepreneurs often take matters into their own hands when launching their business and tend to refrain from hiring (in an effort to cut costs). After all, the United States payroll costs hit their highest level in 20 years in 2021 and show no signs of slowing down.

However, as tempting as it is to delay hiring in the early stages, trying to do it all yourself can quickly lead to Burnout. Focus on the areas in which you excel and hire competent people to handle other aspects of running the business.

Not sticking to a budget. “Running a business” can often be considered the least glamorous part of starting a business. For example, creative types (artists, florists, chefs, etc.) may not be good at monitoring their costs as an entrepreneur with an accounting degree. Not setting and sticking to a budget can result in a loss of money for a business and ultimately can lead to feeling overwhelmed.

Set a budget and stick to it. Use Excel or Quickbooks to track income and expenses. If you can’t afford to hire a CPA, you may be able to add a less expensive accountant who can prepare monthly financial reports that monitor profitability.

Bad marketing strategy. Know your target market and how to reach them. It sounds easy, but it can be difficult. A professional-looking, mobile-friendly website is essential in the 21st century. Take advantage of social media to create buzz around your business. Understand which audiences are on different media channels. You want to reach teenagers, Facebook is not the right vehicle. Its demography is older. You are more likely to find teenagers on instagram Where ICT Tac. More and more, companies are discovering the effectiveness of sponsored content, which can be found by search engines like Google, rather than more traditional forms of advertising. Printed newspapers and magazines are in decline. Nowadays, digital news sites are growing by leaps and bounds and delivering attractive audiences at great prices.

“Your startup won’t take off if you don’t know how to market it properly, especially in the digital age. “Bad marketing prevents good products and services from succeeding,” says Tautimes. “Tell the right audience about your new product using social media marketing, which is free and can help you reach a large audience. Learn how to write compelling content, showcase your products in videos, and generate leads with to various forms of communication.

“Mistakes are inevitable for the new entrepreneur,” says Mari Tautimes, successful business owner and author of #KeepGoing: From Mom of 15 to CEO and Successful Entrepreneur. “The top performers learn from them and improve their practices. Test new ideas, get feedback, and rotate as needed. »