The top 6 mistakes new businesses make – and how to avoid them
The top 6 mistakes new businesses usually make
“I’ve got a great idea for a new business.”
If I had £1 for every time I’d heard someone looking to start a new business say that, I’d be sitting on a super-yacht right now, drinking champagne in crystal glasses.
Sadly, I’m not. I’m sitting in my office instead. But with four in ten new companies not making it through their first five years, I have been wondering what common reasons make them fail.
These are the 6 top reasons I’ve come up with. Do any of them sound familiar?
- Getting your pricing wrong
- Being too trusting
- Talking about your needs, not your customers’
- Trying to do it all yourself
- Having no goals
- Poor financial planning
When you start out, there’s always a temptation to offer low prices to undercut your competition. It’s a great ploy for getting customers through the door, but a bad one if you want to make a profit.
It’s much better to research the market and find out what customers or clients are willing to pay, and then to offer a good quality product or service. If you start off at bargain basement prices, then people will treat you as a bargain basement business – and you’ll find it difficult to increase your prices and margins later on.
You wouldn’t lend money to someone you know nothing about. So why work for them without being paid up-front?
Many new businesses fail to do credit checks on new clients, and sadly there are many out there who will take your work but not give you their money.
Also, make sure you have agreements in writing before working for a client. If you are given a lot of work and you need to hire people, then make sure you have a written contract that has been checked through by your lawyer.
This is so common, even among established businesses. If you trawl through lots of small business websites, you’ll find many of them talking about the things that interest them as a company – how big their team is, when the company was founded, how many years’ combined experience they have.
Customers and clients rarely care less. Instead, focus on what their needs are – quality, service, price, aftercare, benefits and exclusivity to name but a few. Remember, as advertising legend David Ogilvy used to say, ‘you can’t bore people into buying your product; you can only interest them in buying it.”
The old adage, ‘work on your business, not in your business’ is as true today as ever it was. And when you are starting out, the temptation is to do as much as possible yourself to cut costs.
But is it sustainable? If you want to grow your business, do you really want be spending hours doing your own bookkeeping, building your own website, writing your own advertising and managing your own HR? If you outsource these and other tasks to experts, you’ll get better results and more time to grow your business – and this should more than pay for the extra expense.
When someone says ‘where do you want to be in five years’ time?’ it takes you straight back to the days when you were being interviewed for your first jobs. But it’s a valid question, especially when you ask it of your business. What turnover do you want to achieve? How many clients do you want? Which markets do you want to be active in.
Without clear planning, your business is effectively drifting without a rudder. Decide where you want to go, make a plan, and don’t be afraid to adapt it as your business grows.
As an accountant, this is where I see the most mistakes. Businesses have come to me with no idea of how to make their operations tax efficient, how to access R&D grants, where to go for commercial loans, how to offset losses against tax and much more.
We’ve helped many of these firms turn themselves around, simply by giving them good advice, a quality service and – because we’re nice people – by acting as a critical friend, often in the role of an ‘as-needed’ finance director.
Contact THP today
If you’re running a new business, do these 6 mistakes chime with you? Or are there others that have held you back? Let us know – and if you would like friendly and impartial accountancy advice, be sure to get in touch.