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The failure rate of small businesses is staggering. 20%, 30%, 50%, and 70% of small businesses would have failed by their 1st, 2nd, 5th, and 10th year respectively.

If you own a small business, there's no doubt that you have a lot on your plate. There are government regulations to contend with, accounting work to be done and marketing campaigns that need to be planned and executed.

You also need to keep an eye on employee morale and handle the day-to-day operations of the business. It's a lot to juggle.

Yet, you can’t afford to make mistakes. Some mistakes can be costly and have a lasting impact on the survival of your business. Knowing the most common mistakes to avoid will help you get off on the right foot and set you up for future success.

Legal Mistakes

Using a Wrong Business Structure

One of the most critical decisions a founder(s) must take when starting their business, however small, is how to register the company. Most small businesses would do well as sole proprietorships or general partnership entities.

However, if the founder(s) are unwilling to bear personal responsibility for business liability, an LLC or a corporation (s-corp or c-corp) is the way to go. This is only one of the many considerations to make when registering your business with the government.

The type of entity you establish determines how you will file taxes, account profits, assume liabilities, access credits, and so on.

This information should be detailed in your business plan to give you a clear idea of where the business is heading and what to expect as the owner.

Not Using a Registered Agent

Business formation is a somewhat straightforward process, but going through the steps can be cumbersome.

You need an agent to guide you through entering into agreements, drafting legal documents, and ensuring compliance with business regulations.

Having a registered agent like Rocket Lawyer for your business is not even optional when you want to form your company in certain states.

Your agent helps you go through the actual business registration process, submit and retrieve forms, correspondence, and other such important documents and generally serve as a liaison between the government and your business.

Although you can be your own registered agent, for a small fee, you can pay a registered agent and have them worry about compliance issues on your behalf. That frees you up to focus on actual business operations.

Lack of Proper Written Agreements

We live in the age of technology when agreements can be easily reached via a couple of video calls and emails. But a smart business person knows not to enter into commitments without formal written agreements.

Informal agreements are unreliable, and even though the law sometimes enforces such ‘handshake deals’, you can never be too sure that the judgement would be in your favour.

Therefore, it is in your best interest to play it safe by forming formal written agreements to protect your business from risky exposure.

This is the point where you need a lawyer; they draft and review agreements to ensure that your business is not unreasonably exposed to harm.

Financial Mistakes

Conflating Personal and Business Accounts

This is a common small business owner mistake, especially for sole proprietorships and general partnerships, since there is no legal separation between the owner and their business.

Yet, even without this legal obligation, it is always advisable to keep personal accounts separate from business accounts to avoid business cash flow issues or compromising your personal finances and assets.

From the get-go, open a separate account for your business and keep financial transactions separate from your personal spending/income. And whenever you make a personal investment into the business, record it.

Choosing the Wrong Investor

One of the significant challenges small business owners have to deal with is the lack of capital to fund their business vision. At that point, it seems all that’s needed to propel the idea is money from willing investors, any investor.

Yet, that’s when a founder should be most careful. An investor is basically a business partner; if you choose based on money only, you would probably run into mistakes, especially when your vision and expectations don’t align with the investor’s.

When seeking investment into your business, always remember that you choose the investor just as much as they choose you.

Research the investor and vet them before reaching an agreement. Choose investors based on their experience and their commitment to your business.

Impulse Spending

The beginning is often the most delicate stage for every business. Yet, it’s often when many business owners tend to impulse-spend.

Indeed, excitement comes with finally starting your business, eventually bringing your ideas to fruition. But you shouldn’t be so overcome by this that it leads you to make bad financial decisions and make purchases you don’t need.

As a small business, you should limit expenses to strictly necessities and scrutinise every potential cost. That’s how to ensure that your spending does not chip into your profit margin.

Have a detailed budget and track spending to ensure that every expense contributes meaningfully to the business.

Marketing Mistakes

Not Listening to Customers

The age-old business mantra remains true: the customer is king. To market effectively to anyone, you first have to learn their needs and desires and then sell them a satisfactory solution.

“But how do you appeal to someone you don’t know?”

We live in an age of data. And that’s a good thing; being able to pull up massive amounts of data that help you learn about your customers’ demographics, cultural expectations, and so on.

Yet, nothing beats listening to the customers themselves. Above all else, you should trust what your customers say about themselves and align your solution to meet their expectations.

As a small business, collect feedback from your customers at all times. Ask them why they buy your product, why they don’t buy from your competitors, what they wish you’d do better, and so on. Satisfied customers make the best unofficial business ambassadors.

Having Poorly Defined Targets

Large enterprises are successful at marketing because they treat it as a strategy, with dedicated offices, budgets, etc. Small businesses? Not so much.

Indeed, you might not have the budget to compete with industry giants, but the least you can do for your small business is treating marketing as a strategy.

There should be some research and a well-detailed plan informing your choices per marketing channels, ads, expenses, etc.

Your marketing process should not be left to chance. Have clear targets and develop a plan to meet those targets within a reasonable period. Use the SMART goal-setting principle to set specific, measurable, aspirational, realistic, and time-bound marketing objectives.

Not Tracking and Measuring Results

How do you know if your marketing tactics are working without a process for tracking results? How do you know what’s not working?

These are crucial questions for every business owner.

Having a clear picture of the state of your marketing efforts help you determine which areas require more dedication or investment, which channels should be cut off or added, or which models to test.

The most significant benefit of tracking your marketing results is that it helps you uncover opportunities to scale your marketing efforts.

Therefore, invest in marketing tools (there are many free ones) that can help you measure your results, test your process, and discover opportunities.

Conclusion

So you've finally decided to start a small business. Great! But before you go rushing off to file your papers, these are a few things you need to consider.

Small business owners who don't take the time to learn about the law, finance, and marketing of their businesses set themselves up for failure. Many mistakes can kill your small business.

The good news is that you can prevent most mistakes with careful preparation and thorough research.