It’s a fact that many small business ventures fail in their first year. There are tons of resources on the web about why so many new businesses fail, and I won’t attempt to recreate them here. However, I’ve noticed five things that many failed businesses have in common. The purpose of this post is to help you avoid these shortcomings when starting your business. Here they are in a nutshell:
- Write a business plan.
- Set goals.
- Get professional help early.
- Understand the difference between employees and contractors.
- Write everything down.
- Write a business plan. I’m always surprised when folks have a terrific idea for a business, then jump in without having a solid business plan. Certainly, a solid business plan is not a guarantee of success. Lack of a business plan is a recipe for failure. More than that, a written business plan is essential to getting funding. Banks and savvy investors demand a business plan before lending or investing. How does one go about crafting a business plan? There are free forms on the web. Check the Small Business Administration website https://www.sba.gov/writing-business-plan for step-by-step directions for writing a business plan. Austin is blessed with local resources for entrepreneurs. There are a number of local Meetup groups for entrepreneurs and start-ups. Search www.meetup.com to find them. Austin’s Business Success Center can help with business plans and has a mentorship program. Check them out at www.ownersview.com. The City of Austin has a small business development program that offers a number of free resources to small businesses and start-ups. Explore them here: https://austintexas.gov/department/small-business-program. With so many resources available, you deserve to start with a strong business plan.
- Set goals. It’s hard to get to your destination if you don’t know where you’e going! Goals provide you with a solid destination to aim for. Figure out what you want. Dream big. That’s your long-term goal. Work backwards from there to get shorter-term goals. Know where you want to be at the end of each month, at the end of each quarter, and at the end of each year. Be flexible enough to tweak your goals as you go. Goals are personal and individual. The resources listed above for crafting business plans are also valuable for goal setting.
- Get professional help early. Sure, you can file your own Certificate of Formation with the Texas Secretary of State and get your Employer Identification Number from the Internal Revenue Service by simply filling out the online forms and paying the filing fee. And, your business is up and running, right? Wrong. Choosing a business entity without professional help is folly. These initial decisions affect every aspect of your business, especially your pocketbook. Get advice from an accountant and from an attorney before choosing whether to operate as a sole proprietor, a limited liability company (LLC), a partnership, or a corporation. Once you make that decision, get professional help filling out forms and filing formation documents. For example, LLCs are popular because they can shield an individual’s assets from liability. However, the liability protection is easily lost when the owner fails to hold annual member meetings or fails to file required reports. An attorney will guide the business owner so that annual meeting and reporting requirements are met. Too often, owners seek help after the business is in trouble: they’e been sued, or they’ve forfeited their existence with the Secretary of State. Why? To save money, of course, but the savings are illusory. It is far more cost effective to seek help early and avoid problems than it is to pay an attorney to resolve problems after disaster has struck.
- Understand the difference between employees and contractors. A great business plan plus great marketing efforts, means business growth. Soon you may need help. It is tempting to use independent contractors rather than hiring employees. After all, contractors are responsible for their own taxes and benefits. Hiring even one employee comes with a few headaches: payroll, withholding, workers’ compensation insurance, unemployment. Before hiring, it is wise to get professional advice to determine the feasibility of using contractors because misclassifying an employee as a contractor can be devastating. If the Internal Revenue Service determines that an employee has been misclassified, the result is that the employer has failed to properly withhold income taxes and FICA. In addition to paying back withholding, the employer incurs penalties and interest. One misclassified employee can devastate a small business. It pays, therefore, to understand the factors that must be present for a worker to qualify as an independent contractor.
- Write everything down. In the Old West, you could do business with a handshake and usually trust the other party to live up to his end of the bargain. Not so much anymore. People don’t always live up to expectations. Agreements fail for a number of reasons. When agreements fail, enforcement is difficult, if not impossible, when the agreement is a handshake. The simple act of writing down an agreement, a policy, or a procedure goes a long way toward enforcing it. A well-written policy, procedure, or agreement sets reasonable expectations for performance and provides a framework for success. When expectations are not met, a well-written procedure, policy, or agreement provides a mechanism for enforcement. If the prospect of enforcement is not enough, know that scam artists are abundant in today’s business environment, and scam artists prey upon those who will enter a handshake agreement and those who will provide advance performance without first seeking legal protections.
Will doing these five things ensure business success? Not necessarily. However, failing to do them will make your start-up vulnerable to failure from its inception. Ultimately, all five tips will save a business money in the long run because it is far less expensive to do things correctly in the beginning than to rectify mistakes later. Bringing your great idea to fruition is worth it.