Most new businesses fail within the first year of operation. The reasons for failure so soon after opening fall to misconceptions by the owner as to the reality of entering the competitive global market. Entrepreneurs believe their ideas will propel their product or service to the top of the market and keep them flying high forever. The reality hits hard when their business succumbs to any of the five mistakes made when launching a new business.
1. Inadequate marketing techniques
The failure to plan market strategies before opening a new business leads to low sales and the early closure of a business.
By not recognizing the importance of marketing to the proper demographic through the many channels available, your business can flounder quickly. Advertising needs take precedence over other budgeted items. Without customers, a fully furnished office quickly empties.
2. Over-spending on staff and inventory
Every new business owner sees their product or service selling quickly and losing business because of too few employees. The opposite scenario needs planning to keep overhead expenses low. Credit card debt also puts spending over budget. A business prepaid debit card can help stop new debt from incurring.
A new business needs nurturing to grow. Hiring too many employees eats away your capital even when business becomes steady. To control overhead costs you need to under-staff and only hire new employees when the profits allow for the expense:
- Vacation time
Business owners also must account for the deduction of:
- Federal, state, local and sales tax
- Social security
- Other required payroll deductions
Careful planning and forecasting will save money on overhead expenses. Over-spending on inventory and supplies also becomes an issue when sales do not meet the expense. To keep spending on unnecessary items down, use a business prepaid debit card. You will not spend over the prepaid amount, nor will your employees.
3. Opening a business without planning
Entrepreneurs take risks and become bored quickly when risky ventures do not appear quickly. The necessity of thorough business planning becomes clear when the new venture closes within a year of opening.
New products or services proving success ignite the idea of opening a business. How do potential business owners know if their ideas will succeed?
- The idea has a unique value to consumers
- The name and packaging rate well with consumers
- Tests groups try then rate the product
- Outlets in a small area receive products to test consumer interest
A product will fail if consumers involved in testing do not like what they see or the price seems too high.
4. Under-pricing a new product
A person new to business may under-price their new product in hopes of making many sales. This mistake leads to low profit, no profit or even oweing more when the cost to produce exceeds the sale price.
Sellers must account for:
- Production expenses
- Employee overhead
5. Undeveloped management skills
Business owners also have management roles but often do not know how to manage people. Without management ability, employees have little structure in which to work. Employee respect and pride comes in policy, procedure and circumstances set at the time of hiring.
Consumers do not want to shop when employees play loud music, ignore them or converse about personal matters while waiting on them. A manager must have the ability to hire employees who will present themselves professionally and who will put customer service as top priority. Firing employees who break rules also falls to the manager.
Starting your own business is an exciting adventure but one that will leave you with many questions and decisions. By doing the research first and anticipating many of the hurdles you’ll face in your first year of business, you can be better informed — and prepared — to help your business become the next local success story.
Marilyn Smith specializes in covering the latest news of interest to small business owners, including business prepaid debit cards.