I am a perfectionist. When I put my heart into something, I make sure it goes on smoothly with least mistakes. Recently, I have been thinking of putting up my own small business in the comforts of my home. My checklist is almost done but I am still anxious about committing errors that might pull my enthusiasm down. I read through blogs and business-related websites and came across the most common 5 Fatal Errors during business startup.
Holly A. Magister, a founder of Exit Promise, which is a social business network, mentioned in her article that it never ceases to amaze entrepreneurs how certain seemingly simple decisions can become fatal errors down the road. According to Holly, there are 5 common errors to avoid when starting a business. These errors can create havoc in the business when left unmanaged. That’s why these mistakes have to be avoided as much as possible. You can read the entire article at the Exit Promise website entitled 5 Fatal Errors to Avoid When Starting a Business.
Knowing the fatal errors of the business will make us feel secured that we are doing the right thing, especially when we know how to avoid them. It is something that we have to be assured of, especially for newbies like me.
5 Fatal Errors and How We can Avoid When Starting a Business:
1. Not Doing the Math.
Ignoring the total costs required to deliver the product or services offered by the business can be fatal. If all the costs are not considered, the likelihood of a business to set its product price or service at a profitable level can be a gamble.
When listing down the expenses, it is important to include items, like office supplies or utility bills generated from the business transactions. The minute-expenses become greater when everything is added-up.
2. Offering Equity without Risks to Friends and Family Members to Entice Them to Become the Business Owner’s Partner.
Holly believes that it creates a complicated situation when a business owner offers their friends and family the promise of equity without requiring them to assume risks. Risks come in many forms. It may include cash to start and sustain the business, bank or lease personal guarantees, cash for payroll, working more than the typical 40 hours, and in some cases contributing sweat equity without compensation in any amount whatsoever until the company makes a profit.
In most cases, we fail to avoid this kind of error when starting the business. We are sometimes caught up with the thought that we can trust our friend or family member to be our business partner. However, we fail to consider their interests and tell them of the possible risks that come along when business is starting up. People will assume success right away. In worse cases, they become very disappointed when the opposite happens. They may even blame you for the loss. I am not saying that you will not trust anybody close to you. My point is that you will need to make sure that your business partner is not just your investor. He must understand the business by heart, the goals, and the possible risks that are involved when starting or even running the business.
3. Ignoring the Exit.
Another fatal error mentioned in Holly’s article is ignoring the exit. She wrote down that it is unusual to find businesses operating with partners who have not spoken to one another for several decades. Often, the reason is rooted in the fact that they skipped the exit planning process during the start-up. No thoughts were given to the possibility that one or more of the partners may not want to continue in the role as owner or may become ill or incapacitated. Over time, life circumstances change for each individual partner and the perspective of each partner may shift.
I personally would have not thought of this error. Come to think of, even if I run my business solo, I need to have a contingency plan for worst cases. I understand that I have to be ambitious; however, I really don’t have the talent to predict what my business will become in the future. I realize now how important it is to know when and how to exit. For those running the business by sole proprietorship or for the partnership, there should be a backup plan, if one of the partners decides to stop.
4. Not practicing your ABC’s.
Holly meant Always Be Counseled for the ABC’s. She strongly advised that when you are considering a legal agreement, written or oral, find competent legal and financial help.
I am a number 1 fan of Google for blogs, helpful tips, and useful ideas. However, I have to agree with Holly on this error. Sometimes we think that the Internet has everything, which is actually true, but it is still different when you seek advice from an actual professional.
5. Making Promises You Cannot Keep.
According to Holly, most people do not know that a verbal promise is a valid contract. It’s true. It can get the enthusiastic entrepreneur, particularly during the start-up stage in their business, into big trouble.
To avoid issues with the partner or with the people working for you, it is advisable that everything is written on paper. In addition to that, you shouldn’t make promises, if you know you cannot keep. People will always go back at you and ask what you have promised. Not keeping promises will create an issue between you and the people you are working with. This could sabotage your business operation and everything in between.
When we start our business, whether it be big or small, we have to make sure that errors are avoided. We can do this by remembering the errors that Holly A. Magister mentioned in her article. It is advisable to become ambitious when thinking or planning about your small business. At the same time, we have to make sure that we are doing the process with least mistakes, including avoiding the fatal errors.