6 Common Mistakes Small Business Owners Make

Did you know that the majority of small businesses fail within their first three years? This is largely due to poor planning and funding. Many of these issues can be avoided by understanding the common pitfalls. Here are six of the most frequent mistakes made by small business owners:

1. Inaccurate assumptions about operating costs
At the start of any business venture, a business plan is crucial. However, it's important to find a balance between optimism and realism when calculating expenses. When estimating operating costs, always round up to the nearest thousand, rather than down. This provides a cushion for unexpected expenses, helping you avoid unpleasant surprises.

2. Buying too much inventory or equipment upfront
One of the early lessons in business is that nothing is predictable. Many business owners are eager to implement their plans, often buying large amounts of equipment or inventory without testing the market first. In the early stages, it's wiser to buy small quantities and lease equipment where possible. This allows flexibility if you need to make adjustments along the way.

3. Securing flimsy contracts with suppliers and staff
In the beginning, strong relationships with suppliers and staff may not yet be in place. While it's important to make a good impression, ensure that the agreements you commit to can withstand future growth. Avoid overcommitting to expensive staff or large supplier contracts until your business is more stable and has a proven track record.

4. Poor budget planning
Budgets need to be adaptable and align with the flow of your business. The key is maintaining accuracy and accounting for all predictable expenses. Establish weekly and monthly accounting and budgeting practices. This keeps you close to your actual running costs and allows for real-time adjustments, preventing budget overruns.

5. Investing too much too quickly
Entrepreneurs are often passionate and eager to invest more to maximize profits. However, it's important not to overextend yourself. As a general rule, avoid investing more than 20% of your capital at any one time, especially when launching a new business or product. Incremental investments can help minimize risk and prevent significant losses from a single bad decision.

6. Using the wrong funding at the incorrect time
Many business owners fear debt, but not all debt is bad. Taking on the right kind of debt at the right time can benefit your business in the long run. This could include start-up funding to get your business off the ground or a merchant cash advance that aligns with your turnover. Good debt can be paid back quickly and helps build a positive lending history.

The bottom line
While there are many challenges that can lead a business astray, there are also numerous ways to drive success. By understanding and avoiding these common mistakes, you can better prepare for the journey ahead and make informed decisions that propel your business forward.