Small Business Mistakes to Avoid
Owning your own business means making decisions every day that could have lasting repercussions, so planning as far ahead as possible is essential for success.
Nobody said running a business was easy, although many how-to books would like to make you think otherwise. Owning and operating your own business means making decisions every day that could have lasting repercussions, so planning as far ahead as possible is essential for success. No pressure, though. If you own a small business or are thinking of starting one, here are a few basic tips to keep in mind.
Getting a loan
Many businesses need a loan to get off the ground, and there's no shame in that. Business loans are vital for many companies of all sizes, and getting access to credit is a great way to jumpstart a business. However, getting approved for a loan is just the first step. It's the way you use that credit that defines your success.
"Credit cards offer greater convenience, but should be used carefully."
Many businesses rely on credit cards to handle initial expenses or even for day-to-day spending once things get up and running. Credit cards are handy for businesses as well as typical consumers because they are convenient, especially when cash flow is limited. They can also be used to take advantage of rewards. But as we all know, credit cards can be easily abused without good spending habits. Business news website SmallBizTrends noted that it's never a good idea to max out a company card, even if you have the means to pay it all back before the due date. Credit companies and banks calculate your credit score based on how much of a credit line you use, not how much you pay off. This can mean problems if you apply for a business loan while your credit card balance is at or near the limit. A good rule of thumb is to stay below 30 percent of your credit limit, even if you plan to pay off the full balance each month.
When you do decide to apply for a loan, come prepared. Lenders want to see that you have a realistic plan in place for how to use the loan and how you will pay it back. By devising a business plan and putting it on paper, lenders will feel much more confident to approve you for the loan. Even better, you might receive a lower interest rate if the lender feels confident in your plan and you have a good credit history.
Americans start countless businesses every year, and yet only a small portion of them survive for more than a few years. Many of these businesses succumb to similar mistakes in management and leadership that seem insignificant at first, but eventually snowball into disaster.
The Wall Street Journal asked several business owners and entrepreneurs about their own biggest business blunders to give readers a sense of what could go wrong in formulating a new company. Their stories can serve as useful lessons in what to avoid when managing a new business.
Wayne Rivers, co-founder and president of the Family Business Institute, chimed in with a cautionary tale for family-owned businesses. These types of companies are a major part of the American economy, with the Conway Center for Family Business estimating that as much as 64 percent of the nation's gross domestic product stems from family establishments. However, Rivers noted that family companies often have trouble handling employees, specifically letting go of underperformers. Obviously, no one likes firing workers, especially if there is a family relationship involved. But these underperformers often hold the business back in many ways. Rivers stressed that all companies, and especially family-owned ones, need to have robust systems in place for evaluating performance. And more importantly, they need to adhere to these strict protocols.
No small plans
A business plan is a vital component to the creation and maintenance of a successful company. However, too many startups neglect putting enough research and effort into crafting the initial business plan, which can set them up for trouble down the road. According to the U.S. Small Business Administration, the business plan is essential to short- and long-term success, and should be written with as many as five years of future growth in mind. As previously mentioned, a solid business plan may also be the deciding factor when it comes to getting a loan.
< p>One Wall Street Journal contributor also wrote about the challenges in creating a comprehensive business plan. Richard Duncan, owner of a construction business in Salem, Oregon, discussed the problems inherent in crafting a business plan without a strategy for future growth or any kind of flexibility. Duncan and his business partners found that sales were better than expected and the business was growing quickly, but he had no plan in place to handle that. Instead of flying by the seat of their pants, Duncan and his colleagues decided to take the time to reformulate the business plan to account for their new trajectory.
"We were lucky to catch ourselves and update our plan in time," Duncan wrote. "If we had waited, we could have lost focus on our mission and the ideals the company stands for."
Business owners or hopeful entrepreneurs looking to make a difference should contact Vectra Bank for all their startup need