Taking out bad loans
There is a very simple reason why banks give out loans. They
make money off those loans. They do not give out loans because they are run by
nice people who want you to succeed. This being said, this does not mean that
you cannot find a good loan for your new enterprise. You only need to be
spectacularly careful.
If you are bent on going to a traditional bank, then make
sure you shop around and visit at least a few different banks. Compare their
small business loans and work out which will work out best for you. There are,
of course, alternative ways of financing your small
business, but you need to be careful here too.
In short, when borrowing money from any kind of an
organization, do your homework and only take out a loan when you are certain
you will be able to repay it in full and in time.
Not having a comprehensive business plan
A business plan is an outline of how your new enterprise
will be making money. Your business plan needs to cover the costs you will
incur while doing business and the revenues you would be generating. You will
also want to factor in the taxes and the repayment obligations on any loans
that you might have taken.
There are a few ways in which new entrepreneurs mess up
their business plans and you need to avoid these. For one, you cannot be
over-optimistic about your market and how much money you think you will be
making. Do your market research and always work
with conservative numbers. Also, you have to calculate your expenses properly –
office space, employees, day-to-day expenses, taxes, licenses, etc.
Without drawing up a really thorough and precise business
plan, you are inviting disaster, short and simple.
Spending too much on offices
The ‘offices’ from the title of this section of the article
also entail other kinds of business spaces that your new enterprise might
entail.
Which brings us to the next problem – spending too much on
the business space.
Since you are most likely to be renting out space for your
new enterprise, you need to make sure you are only spending as much as you have
to. If you can fit everything in 400 square feet, do not rent out 700. If you
do not have to be in a busy neighborhood, don't waste money on prime locations.
When negotiating office space rental, it is also very
important that you do not go into any long-term deals, especially if you believe
that your company will grow quickly. This way, in future, you might have to
continue paying for a space that can no longer accommodate your business.
You should also be very careful about the costs of
furbishing your new enterprise. Some new entrepreneurs think that it is
important they have the latest office furniture and all the latest technology.
This is simply not the case.
Remember, you are in for a long game.
Splurging on software
Depending on the type of business you will be doing, there
is a great chance that you will need to start using some kind of business
software. After all, this is the 21st century and it is hard to
imagine most offices nowadays operating without some kind of software.
Even if you are in the service industry and running a restaurant (for example), you will still be using some form of software, like an accounting or a shift scheduling software.
Even if you are in the service industry and running a restaurant (for example), you will still be using some form of software, like an accounting or a shift scheduling software.
The important thing here is to be very careful and do your
research before you commit to any solution. If you discover that you will need
project management software, do a comparison of project management tools.
If you find out that you cannot work without accounting software, you will once
again do a comparison and
find the solution that fits your needs the best.
Sometimes you will find great free options and, at other
times, you will realize you have to pay. The important thing is you do not go
overboard before you exactly know what you need and want.
Hiring the wrong people
It may seem that hiring the wrong person has nothing to do
with money, but once you realize how much it costs to hire a wrong person, you
will understand how important it is to get your hiring right.
When you hire a wrong person, you are entering into a
relationship that will all be bad for you. First of all, you will be incurring
costs in training and onboarding the employee. They will pick up very little
since either they are not interested or do not have the capacity to learn.
Then, you will be paying them for months of subpar work in
the hopes they will get better or become more engaged. After a while, they will
either leave you or you will be forced to let them go.
Either way, you will have to hire a new person and go
through the entire process once again.
It is because of this that hiring a wrong person can turn
out to be a very costly affair for you and you need to avoid such a situation
by planning your hiring carefully and skillfully.
Closing Word
Keep an eye out for these mistakes and try to do everything
in your power to avoid them. If you do, you should be able to lead your new
enterprise towards profitability and growth.
Thanks for your time!
AUTHOR: James D. Burbank is the editor-in-chief of BizzMarkBlog.
He spends his time between Australia and Europe and he consults SMBs on
marketing and smart business software practices.