Standard mistakes that could kill your start-up
Give your business a fighting chance by getting things right from the start.
Starting a small business can be an exciting, anxiety-provoking, hectic, costly and rewarding exercise. With so much to get your head around, it's little wonder some important tasks get overlooked.
Get it right from the ground up
It's tempting to undertake all the necessary paperwork in-house, to cut out legal and accounting costs.
But Joe Kaleb, chartered accountant and CEO of small business portal www.australianbiz.com.au, says many people focus on cutting costs and don't consider the benefits of contacting their accountant for advice before embarking on their venture.
“Perhaps the most common and important mistake that business owners make when starting up is that they don't seek advice early on important matters, such as the appropriate legal structure to operate the business, setting up appropriate systems, the best way of funding the business, having the right insurance policies in place, and having a business plan that is updated on a regular basis,” Kaleb says.
“The consequences of this is that the business owner may end up paying more tax, because, for example, a company was not set up as opposed to running the business as a sole trader … it increases the risk that the business will fail.”
Learn from others' mistakes
Failing to properly register business and trading names is more common than you'd expect, according to Ben Dalton, senior business facilitator at (Sydney's) Eastern Suburbs Business Enterprise Centre.
Dalton says the top five mistakes small businesses make when starting out are:
1. Not checking if the preferred trading name has already been registered with ASIC
“Up until recently, business names were regulated separately by each state government. (Therefore) it was possible that the same name would relate to a range of businesses across multiple states," he says.
"For businesses that are just starting and concentrating on their local market, this might not be a problem, but once they start to expand (especially with a presence on the internet), they could find that they are being confused with an inferior producer – or even worse, other businesses are benefiting from their hard work and good reputation.
"Now that the federal government has taken over regulation, the price has come down and registration is national, so that's great, but it also means it's even more important to check first before the domain name is purchased, promotional material is printed and signage paid for.”
2. Businesses that have registered the business name – but fail to check if a trademark has been registered
“Sometimes a business can be in operation for years, and then suddenly gets a 'cease and desist' letter as they are infringing someone's trademark," he says.
"Often it's not understood that business name registration is designed to protect consumers, so the operator of a business can easily be tracked down if something goes wrong. A trademark is designed to protect the intellectual property of the business owner. This could include (singly, or in combination) the business name, colour/s, logo, smell – even sounds.”
3. Lack of a five-year plan with milestones to a clear exit strategy
“When I bring this up in the facilitation meetings we hold, people often ask: 'why would we be discussing the end, when I am only just beginning?'," says Dalton.
"I reply that, without a clear idea of what all the blood, sweat and tears are for, it will be almost impossible to get through the long days and cold, lonely nights that is the reality of running your own business. The end goal not only has to have a deadline, it also needs to have a number that makes it worthwhile investing five years of your (and your family's) life.”
4. Trying to appeal to too broad an audience
“We often see people who have a very general product or service, and they often try to appeal to as many different types of customers as possible – simultaneously," he says.
"This is almost always a mistake. By completing a competitor analysis, they could find out what is going on out there with products that are similar, and then via the '5 P's' of marketing (product, price, place, promotion and people) (to) identify what their point of difference is. This will then make it easier to identify what target market would find this point of difference attractive. Once they know who the target market is, they can then make it easy for that market to find them.”
“One of the most elemental aspects of starting a business is often the most overlooked, and that is the question of: why? This process begins with (asking yourself): 'why would anyone start and run this business', and then leads to 'why am I starting and running this business?' If the answer is not clear…then it probably shouldn't be done.”
Other reasons businesses fail
• Lack of management skills and business experience
• Inadequate working capital
• Poor marketing
• Inadequate market research/poor geographic location
• Poor competitor analysis
• Poor understanding of relevant laws and regulations that must be complied with
• Poor inventory management
• Over-investment in fixed assets
• Poor sales
• The absence of an entrepreneurial orientation