Starting a business isn’t an easy or smooth ride. There will be obstacles to overcome and tough times ahead. That does not mean that you can blindly go into business and not plan for future challenges. Instead, planning for the worst of times and covering all aspects can give your business a better start.
Considering that 9 out of 10 businesses fail within the first two years of operation, it is important that you prepare to give your business the best chance of survival. So what are the five most common aspects of business that new owners overlook when they begin a new venture?
- Hidden Costs and Undercapitalization
You might have done a specific setup costs analysis and planned for all the costs expected within the first year, but that does not mean you’ve covered them all as many costs are hidden when you first start. These can include:
- Transaction charges
- Currency exchange costs
- Interest charges on loans
- Costs of permits
- Replacement costs for faulty products
- Hiring costs
- Delayed revenues
- Credit card processing fees
- Initial office equipment and supplies
- Software and Technical support
You should also look for unnecessary costs that add no value to your business.
- Time Valuation
Valuing your time as a business owner is just as important as the cost of the equipment and staff. By not valuing your time properly, you can really undercharge your customers and make it unprofitable for you to run the business. Therefore, consider the hours you want to work, multiply that by the least amount you would like to get paid per hour and then integrate that cost into your sales.
Remember that when businesses are young, it isn’t unusual for the business owner to earn a lower wage than some employees. Be realistic and conservative with your wage demands. If you have a solid business.
Nearly every single business needs a permit to legally operate within the US. There are several permits you might need to sell your product or just be in existence. Some of the most commonly forgotten business permits by new businesses include:
- General Business License
- Sales Tax Permit
- Fire Department Permit
- Home Occupation Permit
- Sign Permit
If you are unsure about what permits you will need for your business, check with your local authorities. They should advise you on what you need for your business and how you can obtain them.
- Tax Breaks
One of the biggest advantages of being in business for yourself is that you can offset some of your expenditure against your tax, thus having to pay the IRS less. While some costs are obvious (materials, staff, etc.) there are costs that business owners do not realize they can deduct related to marketing, meals and travel. We will gladly refer you to our favorite accounting professionals for further advice.
This is probably one of the biggest mistakes that new business owners make. Some insurance seems unnecessary but is required by law or contract such as your lender or landlord. Some insurance is just smart to have depending on your specific business service or product.
We often advice our new business clients to develop a plan that is alignment with their budget and growth projections. It would be devastating for a new business owner to spend thousands on insurance that could have waited a year or two.
The only way to ensure that your business has the right insurance is to get an independent review of your business to assess for risks. An independent insurance broker is not loyal to an insurance company. They will advise you on your specific needs and then go into the marketplace to find the best insurance company for you.
One more thing to note is that your options for insurance companies increases after you have been in business and insured for two years or more. It is not uncommon for businesses to have different insurance carriers in their third year in business.
As a new business owner, you want your venture to be a success. While your venture has all the odds against it, you can improve your chances by covering every possibility and actively finding holes in your business plans. Consider the challenges above to ensure that you aren’t placing your business venture at risk.
Our agency has supported WEV for over a decade. WEV is a non-profit organization that provides education and loans to small business owners from start-up to exit strategy. Businesses that work with WEV have an 80+% chance of succeeding beyond 5 years. For more information, visit www.wevonline.org.
Are you starting a new business? Is there something you’ve missed?
Let us know in the comments below.